How Quality of Institutions Shape the Expansion of Islamic Finance

Laurent Weill

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: The Arab Spring is expected to enhance the weak quality of institutions in MENA countries. We show in this paper how these changes can contribute to favor the expansion of Islamic finance by analyzing the role of quality of institutions on cost efficiency of Islamic and conventional banks. We measure cost efficiency of banks on a wide dataset of banks from 17 countries in which Islamic and conventional banks coexist. We find that Islamic banks have lower cost efficiency than conventional banks, which can hamper their expansion, as greater costs are associated with higher prices. However better quality of institutions reduces the gap in efficiency between Islamic and conventional banks. Moreover we find that, if Arab countries can increase the quality of institutions, Islamic banks will not suffer from a disadvantage in efficiency relative to conventional banks. Thus, our main conclusion is that the Arab Spring can favor the development of Islamic finance by improving the quality of institutions.

Date: 2012
New Economics Papers: this item is included in nep-ara, nep-cwa and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ifs.u-strasbg.fr/large/publications/2012/2012-08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2012-08

Access Statistics for this paper

More papers in Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg Contact information at EDIRC.
Bibliographic data for series maintained by Christophe J. Godlewski ().