Handbook of Empirical Research on Islam and Economic Life
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Handbook of Empirical Research on Islam and Economic Life

Edited by M. Kabir Hassan

In Islamic jurisprudence, a comprehensive ethic has been formulated governing how business and commerce should be run, how accountability to God and the community is to be achieved, and how banking and finance is to be arranged. This Handbook examines how well these values are translated into actual performance. It explores whether those holding true to the system are hindered and put at a disadvantage or whether the Islamic institutions have been able to demonstrate that faith-based activities can be rewarding, both economically and spiritually.
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Chapter 17: Explaining intermediation costs of Islamic banks in OIC countries

Nurhafiza Abdul Kader Malim, Mansor H. Ibrahim and Mohamed Eskandar Shah Mohd Rasid

Abstract

This chapter empirically examines the financial intermediation costs as represented by net financing margins in the Organization of Islamic Cooperation Islamic banking sector during the period 2005 to 2011 by focusing on the roles played by various bank-specific, macroeconomic-specific and institutional-governance factors. The results indicate that risk aversion, bank size and inflation are robustly related to the margins. Some evidence supporting the significance of credit risk and gross domestic product growth in explaining the margin is also documented. Interestingly, the overhead costs, market concentration and institutional-governance factors have no significant impact on the intermediation costs of Islamic banks. Our results demonstrate important policy implications in narrowing the intermediation costs of Islamic banks, namely, enhancement of risk management instruments, scale efficiency, innovation in Islamic banking products and macroeconomic stability.

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