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Islamic banking: Interest-free or interest-based?
Beng Soon Chong1; Ming-Hua Liu2
Source PublicationPacific-Basin Finance Journal

A unique feature of Islamic banking, in theory, is its profit-and-loss sharing (PLS) paradigm. In practice, however, we find that Islamic banking is not very different from conventional banking. Our study on Malaysia shows that only a negligible portion of Islamic bank financing is strictly PLS based and that Islamic deposits are not interest-free, but are closely pegged to conventional deposits. Our findings suggest that the rapid growth in Islamic banking is largely driven by the Islamic resurgence worldwide rather than by the advantages of the PLS paradigm and that Islamic banks should be subject to regulations similar to those of their western counterparts.

KeywordIslamic Banking Interest-free Profit-and-loss Sharing Mudarabah Bank Financing Bank Deposits
Indexed BySCI
WOS Research AreaBusiness & Economics
WOS SubjectBusiness, Finance
WOS IDWOS:000274533300007
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Cited Times [WOS]:192   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
Corresponding AuthorMing-Hua Liu
Affiliation1.Nanyang Business School, Nanyang Technological University, Singapore
2.Department of Finance, Faculty of Business, Auckland University of Technology, Private Bag 92006, Auckland, 1020, New Zealand
Recommended Citation
GB/T 7714
Beng Soon Chong,Ming-Hua Liu. Islamic banking: Interest-free or interest-based?[J]. Pacific-Basin Finance Journal,2009,17(1):125-144.
APA Beng Soon Chong,&Ming-Hua Liu.(2009).Islamic banking: Interest-free or interest-based?.Pacific-Basin Finance Journal,17(1),125-144.
MLA Beng Soon Chong,et al."Islamic banking: Interest-free or interest-based?".Pacific-Basin Finance Journal 17.1(2009):125-144.
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