The impact of participatory Islamic finance on Shari'ah banks' profitability

Dayah Abdi Kulmie () and Mahdi Mohamed Omar ()

Asian Economic and Financial Review, 2024, vol. 14, issue 7, 482-496

Abstract: Shari'ah Banks offer financing based on Islamic values, fairness, equity, and ethics, promoting stable economies and prosperous societies through employing a variety of methods, including participatory finance. The aim of this research is to investigate how participatory financing impacts the profitability of Shari'ah banks in Somalia. Specifically, the study focused on analyzing the influence of mudarabah and musharakah financing on Islamic banks' profitability. The research employed a correlational design to examine the relationship between variables, and primary data was analyzed using SPSS. The results of this study indicate a strong positive correlation between participatory Islamic financing and the profitability of Shari'ah Banks. The findings suggest that both mudarabah and musharakah financing have statistically significant positive effects on the profitability of Shari'ah Banks. According to the findings, the study concluded that an increased implementation of participatory Islamic financing methods could potentially enhance banking institutions' profitability and performance. Moreover, the article recommends that Shari'ah banks should expand their services, increase product exposure to attract new customers, promote participatory Islamic financing, and develop clear risk-handling policies and strategies. This paper adds valuable insights to the existing literature on Islamic banking and finance while also providing guidance for Islamic financial institutions to improve their profitability, growth, and performance through participatory Islamic finance.

Keywords: Islamic bank; Islamic finance; Islamic financial institution; Mudarabah; Musharakah; Participatory Islamic finance; Profitability; Shari’ah bank; Somalia. (search for similar items in EconPapers)
Date: 2024
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