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Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.

Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.

The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.

It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.

Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.

Inquiring into the role of Islamic and conventional banks regarding the core responsibility of lending is an established phenomenon. This chapter is based on key findings regarding dynamic changes in the structural mix of credit portfolios in Islamic banks and conventional banks of Pakistan.

The nature of the study is exploratory; the sample consists of 5 Islamic banks and 20 conventional banks of Pakistan comparatively evaluated for the time frame of 2008–2014.

Our findings show that for Islamic banks, there is an increasing trend in the credit portfolios as a proportion to assets as well as to equity, whereas in case of conventional banks the findings are opposite. The results further prove a positive and negative growth of credit portfolios as proportional to assets and equity in case of Islamic and conventional banks respectively. It is also observed that credit portfolios of Islamic banks are growing with higher degree as a proportion to equity as compared to proportion to assets. On the other hand, conventional banks show higher degree of decline of credit portfolios as a proportion to equity as compared to assets.

These findings also show that primary stakeholders in Islamic banks are more risk seekers thus more inclined towards risky investments than ordinary credits.

This study aims to develop a Sharīʿah-compliance rating mechanism for the Islamic financial services industry (IFSI), with a special focus on banking. The banking sector is taken as the area of focus due to its leadership role in the volume of global Sharīʿah-compliant assets.

The objectives of the Islamic financial system (IFS) are selected as the basis for ratings. A range of performance indicators (leading to achievement of the objectives) is grouped into four broader categories and used in the study to allocate scores with a sum total of 100. Special considerations – including the amount of resources required in performing an activity, suitability of prevailing business conditions, the degree of compulsion/discretion in performing a task and linkage with the essence of the IFS – were taken into account in the allocation of scores.

This study groups multiple performance measures into four categories, including portfolio construction (deposits mechanism, participatory and asset-based modes of financing), access to finance (service to the less-privileged and sector screening), reputation (disclosures and stakeholders’ survey) and Sharīʿah governance (Sharīʿah supervision and controls, charitable operations, human resources, product development and organization). The Portfolio, Audit, Reputation and System (PARS) rating system is then developed.

A Sharīʿah-compliance rating system is helpful in measuring the progress towards goal achievement of the IFS and in gaining stakeholders’ trust. It is also important for Sharīʿah boards and regulators in policy formulation, for management in addressing weaknesses and taking corrective measures and potentially for standard-setting bodies.

This study presents a comprehensive quantitative Sharīʿah-compliance rating mechanism, taking into consideration the objectives of the IFS – equitable distribution of wealth and financial stability, in addition to Sharīʿah-compliance in operations. Development of Sharīʿah-compliance quality ratings for Islamic banking is essential to gain customers’ trust; the suggested methodology is thus a contribution to the literature on Islamic finance.

This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.

A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.

This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.

The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

This paper aims to draw upon existing debate over “financial sector rent” (bank rent) to analyze the current pattern of financing of Bangladeshi and Indonesian Islamic banks during the period of 2011 and 2015.

The empirical evidence through a comparative approach of analyzing the performance of Islamic banks with that of conventional banks in respective countries – two of the largest countries where majority of the population are Muslims – is drawn to demonstrate the objective.

While Islamic banks in Bangladesh are primarily concentrating on the murabaha (mark-up contract) mode of financing, some transactions under musharaka (partnership/equity-based contract) are observed in the Indonesian Islamic banking sector. This anomaly in Indonesia can be explained by the nature of their musharaka financing which is not of the purely “participatory” financing type. As a result, we can observe the quasi-murabaha syndrome in Indonesian Islamic banking sector. The concentration of asset-based financing including consumers’ financing (hire purchase) in the credit portfolio gives Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Sharīʿah-compliant (Islamic law-compliant) lenders. However, Indonesian Islamic banks share a still infant Islamic banking market, and enjoy less rent opportunity under a severe competition with conventional banks.

The bank rent approach suggests that the syndrome observed both in Bangladesh and Indonesia can be ironically justifiable. Moreover, the mode of profit-and-loss sharing provides, in practice, an idea of the difficulty in managing the participatory financing embedded with high credit risk. Under this scenario, it is necessary for Islamic scholars and the regulatory authority to design an appropriate financial architecture, enabling Islamic banks to avail the benefit from a wider variety of Sharīʿah-based Islamic financing.

This paper expands the newly emerged concept of “Islamic bank rent” to make sense of the murabaha syndrome in Bangladesh and the quasi-murabaha syndrome in Indonesia. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn.

This paper aims to make a first attempt to highlight the Sharīʿah-compliance challenges of existing Sharīʿah-compliant deposit insurance schemes (SCDIS), particularly the issue of subrogation to contributing parties in takāful-based SCDIS and the issue of receiving a fee for guarantee in kafālah-based SCDIS. The paper also aims to propose an additional cash waqf SCDIS structure that mitigates these challenges.

The proposed cash waqf scheme is assessed for compliance against classical works of Islamic jurisprudence and the contemporary regulations and standards of best practices for deposit insurance schemes.

The proposed cash waqf SCDIS structure is able to overcome the Sharīʿah and legal challenges in the existing SCDIS modalities, including subrogation and payment of fees for guarantee. Moreover, it is designed to comply with the International Association of Deposit Insurers’ Core Principles for effective deposit insurance schemes. Hence, a cash waqf structure is a viable alternative for jurisdictions to introduce SCDIS.

This paper introduces an additional cash waqf SCDIS modality and sets the foundation for future research in studying viable Sharīʿah-compliant deposit insurance modalities supporting a stable and resilient Islamic banking industry.

This paper aims to draw on the bank rent approach to evaluate the existing pattern of financing of Islamic banks and to propose a fairly new conceptualization of Islamic bank rent.

The bank rent theory is adopted to generate the theoretical underpinnings of the issue. After that, empirical evidence from the banking sector of Bangladesh is used to support the arguments.

Repeated transactions under murabaha are observed in the Islamic banking sector of Bangladesh. The asset-based financing gives the Bangladeshi Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Shari’ah-compliant lenders, while responding to the periodic volatility in transaction costs of profit-and-loss sharing.

The bank rent approach suggests that the murabaha syndrome can be ironically justifiable. On the other hand, the current profit-and-loss sharing risk provides an idea of the difficulty in assuming the participatory financing with higher credit risk in practice. Islamic scholars and the regulatory authority need to design an appropriate financial architecture which can create different levels of rent opportunities for Islamic banks to avail the benefit from the variety of Islamic financing as declared by Islamic Shari’ah.

This paper introduces a fairly new concept of “Islamic bank rent” to make sense of the murabaha syndrome. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn. To draw empirical evidence, as far as it could be ascertained, the data of both Islamic banks and conventional banks with Islamic banking windows/branches are used for the first time.

The purpose of this paper is to investigate the effect of a focus loan strategy on Islamic banks’ (IB) performance in three areas: sectoral, geographic and the type of Islamic instrument. This paper specifically addresses two questions. First, should IBs focus or diversify their loan portfolios? Second, how does focus in lending affect IBs’ returns and risk?

The panel generalized linear squared method was used for regressions throughout the paper. Data used in the analysis were extracted from IBs’ publicly available regulatory reports in the Gulf Cooperation Council countries. The sample is an unbalanced panel that includes financial data on 26 banks during the period 2010–2018.

Focusing on Islamic instruments and economic sectors would harm IBs’ profitability while reducing their risks. Geographic focus increased the profitability of IBs, but it also increased their default risk. The focus in Islamic instruments was beneficial when risk is low to moderate, but when the risk of an IB increased, it was better to diversify across Islamic instruments. Focus in geographical areas, on the other hand, had a non-linear U-shaped relationship with return, which means that when IBs’ risk is high, focusing their loans in one geographic area enhances their returns.

This paper fills the existing gap in Islamic banking literature regarding the focus/diversification dilemma. It is the first attempt to study the effect of focus in three areas (sectoral, geographic and instrument used) on the return and risk of IBs.

This paper aims to examine the effect of state ownership on bank performance for all banks in the Gulf Cooperation Council (GCC) countries during the period 2003 – 2018, for two distinct banking systems: the conventional and the Islamic banking systems.

To achieve the goal of the study, this paper uses a mean t-test to examine the mean difference of the related variables for both banking systems, and a regression test (using the GMM method) to explore the effect of state ownership on bank performance.

The most important result of the analysis is that state ownership has a significantly positive influence on bank performance for conventional banks but not for Islamic banks, in the GCC area.

This study adds to the scarce related literature comparative empirical results with respect to the impact of ownership on the performance of two different banking systems: the conventional system and the Islamic banking system in the GCC area. This study is likely to have implications for policymakers in terms of developing rules relevant to the governance of GCC’s two banking systems that can help to support the stability of the whole banking sector.

The purpose of this study is to examine the effect of risk sharing and non-risk sharing instruments on both the profitability of Islamic banks and the economic growth of the country. This study also aims to improve the profit and loss sharing-based asset growth of Islamic banks.

The data for this study are obtained from the annual reports of all Islamic banks from Bangladesh using Bank scope database and annual report for the period of 1983–2014. The research uses Autoregressive Distributive Lag approach.

The findings reveal that risk sharing instruments are positively related to profitability and the economic growth of the country. This study also finds that non-risk sharing instruments play a predominant role in the profitability of the Islamic bank but are negatively related to the economic growth of the country.

Banks and other financial institutions need to pay greater attention to systemic risk created by risk transfer and apply risk sharing methods of financing more vigorously than has hitherto been the case.

This study will also contribute to the literature as relatively few Islamic financial literatures deal with the relationship between equity financing and profitability which may make a strong contribution to the area of Islamic finance.