Interbank offered rates in Islamic countries: Is the Islamic benchmark different from the conventional benchmarks?

Salem Nechi () and Houcem Eddine Smaoui

The Quarterly Review of Economics and Finance, 2019, vol. 74, issue C, 75-84

Abstract: Motivated by the size and the growth of the global Islamic financial services industry, 17 Islamic Banks in six Islamic countries, in conjunction with Thompson Reuters, developed an Islamic Interbank Benchmark Rate (IIBR, hereafter) to address the Sharia compliance requirements of Islamic banks in the money market. This paper examines to what extent this newly introduced monetary tool differs from the conventional interbank rates used in the countries of contributing banks to the IIBR. We use cointegration analysis, Granger causality tests and Vector Autoregressive Models to investigate the dynamics and the inter-temporal linkages between the Islamic and conventional interbank benchmarks in five countries from Gulf Cooperation Council (GCC, hereafter) region. Results show that the IIBR exhibits a long-run relationship with the conventional rates and fails to be independently determined. Our findings advocate also that market conditions such as oil prices and inflation do not contribute to the dynamics between the IIBR and the conventional interest-based interbank benchmarks.

Keywords: Islamic finance; Islamic interbank benchmark rate; Conventional interbank rates; Cointegration; Granger causality; Vector autoregression model (search for similar items in EconPapers)
JEL-codes: C32 G0 G15 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:74:y:2019:i:c:p:75-84

DOI: 10.1016/j.qref.2018.05.003

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