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This paper aims to determine the effect of equity financing on bank stability during normal and crisis periods.

This study uses a static panel regression that includes pooled ordinary least square, random effect and fixed effect model to examine the influence of equity financing on bank stability. In estimating bank stability during a financial crisis, the authors predict the occurrence of a crisis using the early warning system (EWS). The authors then used z-score to measure Islamic banks’ stability.

Islamic banks that offer equity financing structure are more stable compared to Islamic banks without such structure. Islamic banks with medium equity financing have highest stability relative to Islamic banks with high or low equity financing. During crises, the Islamic banks with equity financing structure remain relatively stable compared to other Islamic banks.

The sampling coverage could have included a larger number of countries and banks.

The authorities need to strengthen the banking framework to support the Islamic financial products by encouraging a wider use of risk-sharing instruments. Besides using a debt-like financing structure, Islamic banks should also place emphasis on equity financing in instilling the banking sector stability. In monitoring banks with equity financing, the authorities may need to look into the level of equity financing.

Besides avoiding riba and gharar in financing, equity financing encourages cooperation and participation among society as they share the risks.

This paper analyses the effect of equity financing on the Islamic banks stability during normal and crisis periods. This paper further examines the intensity of the equity financing and its influence on bank stability.

This paper aims to examine the antecedents of adoption intention of profit-sharing investment deposits (PSID) among Moroccan customers.

Applying an extended version of diffusion of innovation (DOI) theory and using a non-probability sampling technique with convenience approach, a quantitative survey was developed and administered to 171 Islamic banking users. Structural equation modeling was then used to evaluate the significance of relationships between the various variables under study using SPSS 21.0 and AMOS 26.0 statistical packages.

Empirical findings of the structural analysis indicated a significant direct relationship between adoption intention and six out of seven variables: perceived relative advantage, perceived compatibility, perceived complexity, perceived risk, religiosity and social influence, all of which had a significant effect on Moroccan customers’ intention to invest their funds in profit-sharing based deposit instruments, whereas customer awareness exerted an insignificant positive effect.

The absence of a longitudinal study tracking the actual adoption behavior is the main limitation of this study. Furthermore, data were collected solely from Islamic banking users. Finally, despite being insightful, the empirical findings should be generalized with caution since the sample was purposely selected by the banks’ management.

This study implied that participatory banks should pay substantial attention to risk perceptions, as PSID adoption intention is typically inhibited by high perceived risks associated with these products. Moreover, this study provides great indications to Moroccan regulators and policymakers on a number of issues related to this emerging business.

To the best of the authors’ knowledge, this paper represents the first attempt to confirm the effectiveness of the Rogers’ DOI in examining the intention to adopt a financial innovation in the Moroccan context. It is also the first of its kind to address customers’ apprehensions regarding profit-sharing investment products.

This paper aims to develop a novel approach to Islamic deposit insurance, specifically addressing the deficiencies in the current prevailing models of Islamic deposit insurance.

The analysis in this paper adopts a qualitative content analysis approach to review the existing literature on Islamic deposit insurance and propose a new model.

The proposed model includes a revised scheme. In the event of a bank failure, the funds used to reimburse depositors of the failed bank are divided into two distinct categories. The first category includes nonrepayable premiums that have been previously paid by the failed bank and managed by the Islamic deposit insurance agency or Islamic deposit insurance corporation. The second category comprises qard hasan, an interest-free loan provided by the Islamic deposit insurance agency or Islamic deposit insurance corporation using the deposit insurance funds from the collective pool of premiums of other banks.

The proposed model ensures that well-managed banks are not unfairly burdened by the failures of their poorly managed counterparts, thus preventing a sense of unfairness and inefficiency. Implementing the proposed model may result in higher business practices and risk management standards, ultimately leading to better depositors’ protection and banking system’s stability.

This paper offers a significant contribution to the limited literature on Islamic deposit insurance. The proposed model enriches the discourse and offers valuable insights for the future development of Islamic banking.

Bank lending is the major source of monetary expansion. Bank-led money creation is a key issue in both conventional and Islamic financial systems. The purpose of this paper is to examine the issues related to Islamic banking money creation. In this conceptual paper, the authors investigate the involvement of profit and loss sharing (PLS) in money creation and especially how can PLS limit money creation “out of nothing.” In this regard, the authors examine the potential of the PLS principle in tackling the excessive money creation phenomenon.

This study uses a normative approach regarding Islamic bank money creation that fits Sharia directives. In fact, this study discusses “what ought to be,” that is, the values and norms of PLS money creation that impede excessive money creation.

Overall, Islamic banks create money differently compared to conventional ones. Especially, by avoiding a purely financial intermediary, money creation under the PLS principle sustains a strong relationship with the real economy and leads to a lower money multiplier. Therefore, PLS mechanisms allow financing through real assets and not credit assets “out of nothing.” This could prevent excessive money creation from causing harmful effects on indebtedness and financial instability.

PLS offers a valuable resolution for banking system money creation through the optimization of Islamic bank financing by facilitating the separation of the monetary function from the credit one. This reform thought reinforces the stability value of money allowing it to fully perform its functions with reference to the directives of Sharia. This especially allows the integrity and purchasing power of money, the reduction of the gap between the evolution of both real and financial economies and, consequently, the indebtedness and crisis. It is recommended to promote PLS financing by reforming institutional and regulatory constraints.

This study addresses the contemporary issue of money creation by Islamic banks through the PLS approach. The conceptual framework of this paper highlights the reformist role of PLS in limiting money creation through Mudarabah approach within fractional reserve banking.

There is a growing debate as to how Islamic financial institutions can increase the expansion of profit and loss sharing (PLS) finance instead of widely practiced markup finance. This paper aims to seek to argue that protecting lenders right is to be ensured if we expect to see the rise of PLS finance of Islamic banks.

The paper draws upon the theorical contribution of Toshihiko Izutsu, who shows the derivation of the modern term Islam from its pre-Islamic root of hilm. Izutsu argues that a halim (Muslim or mu’min) possesses power and becomes altruist for fellow Muslim. This research takes this view to illustrate that Islamic lenders should be bestowed with economic and financial power for the expansion of PLS finance.

The authors show that Islamic financial system does not furnish required institutions conducive for expansion of PLS finance. The authors further argue that the practice of PLS should be based on an effective power retained by the lender to discipline the borrower, which is currently lacking in a typical PLS contract.

The retention of the power by the lender does not necessarily breach maqasid al-shari’ah, so far as the power is managed upon the concept of hilm. This philosophical speculation, in the authors’ view, would contribute to bridge a gap between Islamic pragmatists and perfectionists’ view toward expansion of PLS finance.

Although Izutsu’s explanation provides an important tool to argue that the altruistic behaver of halim can encourage the supply of participatory finance, this provision has not been adequately argued in the literature.

Islamic banking has undergone significant adaption since its inception. This study aims to investigate why and how Islamic banks adapt their services, using participatory financing as evidence.

A qualitative study is designed, using working capital financing and commodity operations financing in Pakistan as analytical units. The data for each analytical unit is analyzed using a qualitative content analysis, while the findings are synthesized using a cross-case synthesis method.

Findings suggest that participatory financing has undergone extensive adaptation in the Islamic banking industry of Pakistan, in the wake of resolving constraints to participatory financing and increasing its viability. Consequently, participatory finance has emerged as an attractive and viable option in Pakistan. These findings suggest that unlike in the past, where Islamic banks used to buffer themselves from the environment and ignore the market demands, they have learned to respond effectively to the market demands and the challenges posed by the environment.

Findings suggest that the adaptation strategy is more effective than the migration strategy, because it enables the financial service systems to reduce the underlying risks by avoiding emergent threats and eradicating the inherent weaknesses.

The extant literature provides a generalized view on the adaptation process that Islamic banks undergo to comply with their environment. However, it is limited in terms of conceptualizing the adaptations and innovations in their products and the underlying structural variations. The present study fills this gap.

This paper models the benefits of Islamic banking on the efficiency of the banking sector and on societal happiness. This paper aims to examine how the adoption of Islamic banking to various degrees affects economics outcomes.

This study uses machine-learning tools to build a happiness function and integrate it in an agent-based model to test for the direct and indirect welfare effects of implementing Islamic banking principles.

This study shows that even though Islamic banking systems tend to reduce economic activity, financial stability and societal happiness is improved. Additionally, a banking sector using Islamic principles across all its members is better equipped to handle banking crises because contagion to both economic activity and societal welfare is greatly reduced. At the same time, adoption of the profit-and-loss sharing (PLS) paradigm by banks may also slow down economic growth.

The findings extend existing literature on the advantages of Islamic banking, by quantifying the welfare benefits of the PLS paradigm on happiness and financial stability.

To the best of the authors’ knowledge, this paper is the first to combine agent-based modelling with machine learning tools to examine the benefits of the Islamic banking model on financial stability, social welfare and unemployment.

This study aims to review to what extent Islamic banks carry conventional monetary policy impulses. Hence, the authors focus to review on the presence or absence of an Islamic financing channel.

A systematic approach to the literature review was adopted. The search criterion is confined to empirical studies that examined the transmission of interest-based monetary policy through Islamic banks’ financing, particularly empirical studies that check the existence of an Islamic bank financing channel of conventional monetary policy. By adopting a systematic approach, over 40 empirical papers published in Scopus and Google Scholar were selected for review and analysis to suggest prospects for future analysis in this field.

The existence of Islamic banks may raise concerns for local central banks, particularly in terms of implementing monetary policies that rely on interest rates. Indeed, the specific nature of the business model of Islamic banks based on the sharing of losses and profits as an alternative to interest rate–based remuneration suggests a priori the non-transmission of monetary policy through these free-interest banks. Despite this, the actual asset structure of Islamic banks may facilitate the transmission of monetary impulses to the economy. Currently, there are limited and inconclusive empirical studies on how Islamic bank financing contributes to the transmission of monetary policy. Additional research is required to fully comprehend the response of Islamic banks to fluctuations in monetary policy interest rates, as well as the factors that impact their reactions.

This literature review is incredibly important as it thoroughly examines a critical issue from both academic and practical perspectives. Analyzing how monetary policy actions can be transmitted through Islamic bank financing is an important task that can provide insights for future research. A straightforward response to this inquiry could assist central banks in formulating effective monetary policy.

This study aims to determine the effect of bank ownership on the credit risk of Indonesian Islamic local banks (ILBs).

This study uses the system generalized method of moments (GMM) estimation technique with a sample of 155 Islamic local banks in Indonesia from 2012 to 2019.

The results show that commissioner board (D.COW) ownership has a negative effect on credit risk. This indicates that an increase in the number of shares of Islamic local banks owned by the commissioner board reduces credit risk. On the other hand, government ownership (D.GOW), the Sharia supervisory board (D.SOW) and the director board (D.DOW) do not affect credit risk.

The government, Sharia supervisory board and director board need opportunities to easily own more Islamic local bank shares. Therefore, the provisions regarding the share ownership rights of the government, Sharia supervisory board and director board need to be improved to increase their role in reducing credit risk.

Previous researchers have not studied the effect of government ownership, the commissioner board, the Sharia supervisory board and the ownership of directors on credit risk at the ILB in Indonesia.

Despite being a Muslim-dominated country, Bangladesh has widely embraced traditional microfinance since its inception in the mid-1970s. However, Islamic microfinance, which has a lot to offer to the poor, is still in its infancy and has yet to gain momentum in the country. Therefore, the purpose of this study is to analyze the importance of Islamic microfinance and propose alternative Shariah-compliant microfinance models in Bangladesh.

This study is based on the desk research method, which relies on existing literature to collect secondary data on key concerns of traditional microfinance programs. In addition, institutional-level secondary data were also collected from the Microcredit Regulatory Authority (MRA) of Bangladesh. Guided by the Maqasid-al-Shariah, this study then proposes several Islamic microfinance models to overcome selected challenges faced by the microfinance industry in Bangladesh.

This study suggested three composite Shariah-compliant microfinance models, which are likely to help the underprivileged and thus ensure the achievement of the sustainable development goals in Bangladesh. The first model explained how the operational strategy of incumbent microfinance institutions (MFIs) could be restructured, while the second proposed the organizational strategies for establishing a new MFI. The third model used the notion of Sadaqah (charity) to address the multiple borrowing issues of the industry. Meanwhile, the successful transformation of the conventional microfinance industry to an Islamic one is dependent on the effective collaboration between the regulatory authorities, practitioners and MFIs.

Albeit the paucity of literature on the topic, the findings of this study will guide policymakers/practitioners in designing relevant microfinance models to help transform conventional microfinance into Islamic microfinance in Bangladesh.