Can the Islamic bank be an emerging leader? A panel data causality analysis

ABSTRACT

This short note investigates the ability of Islamic banks (IBs) to play a leading role in revamping and driving conventional banking. To this end, we used a panel of 10 major conventional banks (CBs) and 10 IBs over the period 2006–2013. We applied panel regression tests and carried out a panel causality analysis. Our findings identified no significant causality effect from IBs to CBs and indicated that IBs are not able to play a role of leader.

KEYWORDS:

• Conventional and Islamic banks
• financial crisis
• panel causality test

JEL CLASSIFICATION:

• C22
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In the leadership literature, we identify two types of leader: a nominated leader that can be designated by the group and an emerging leader who emerges through his or her qualities and specificities. We focus here on the second one, as IBs have different specificities and rules.

² The size of the Islamic financial industry is around 1000 billion US$ and is present in more than 60 countries. See Jawadi, Idi Cheffou, and Jawadi (2015) for more details about the emergence of Islamic banking and the chronological introduction of IBs.

³ A committee that certifies Islamic financial products as being sharia compliant.

⁴ The same sample was used by Jawadi, Idi Cheffou, and Jawadi (2015), which enables us to compare our findings with their conclusions.

⁵ We do not present the details of these tests to save space. The unit root test results are available upon request.