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Performance of Islamic and mainstream banks in Malaysia

Performance of Islamic and mainstream banks in Malaysia The study found that Islamic banking scheme (IBS) banks have recorded higher return on assets (ROA) as they are able to utilize existing overheads carried by mainstream banks. As this lowers their overhead expenses, it is found that the higher ROA ratio for IBS banks does not imply efficiency. It is also inconsistent with their relatively low asset utilization and investment margin ratios. This finding confirmed our contention that Islamic banking that thrives on interest‐like products (credit finance) is less likely to outshine mainstream banks on efficiency terms. Although Islamic credit finance products may have complied with Shariah rules, their lack of ethical content is not expected to motivate IBS banks to strive for efficiency through scale and scope economies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Social Economics Emerald Publishing

Performance of Islamic and mainstream banks in Malaysia

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Publisher
Emerald Publishing
Copyright
Copyright © 2003 MCB UP Ltd. All rights reserved.
ISSN
0306-8293
DOI
10.1108/03068290310500652
Publisher site
See Article on Publisher Site

Abstract

The study found that Islamic banking scheme (IBS) banks have recorded higher return on assets (ROA) as they are able to utilize existing overheads carried by mainstream banks. As this lowers their overhead expenses, it is found that the higher ROA ratio for IBS banks does not imply efficiency. It is also inconsistent with their relatively low asset utilization and investment margin ratios. This finding confirmed our contention that Islamic banking that thrives on interest‐like products (credit finance) is less likely to outshine mainstream banks on efficiency terms. Although Islamic credit finance products may have complied with Shariah rules, their lack of ethical content is not expected to motivate IBS banks to strive for efficiency through scale and scope economies.

Journal

International Journal of Social EconomicsEmerald Publishing

Published: Dec 1, 2003

Keywords: Resource efficiency; Ethics; Islam; Banking; Malaysia

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