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A comparative study of the returns on Mudhārabah deposit and on equity in Islamic banks

A comparative study of the returns on Mudhārabah deposit and on equity in Islamic banks Purpose – The paper aims to compare the return on Mudhārabah deposits (ROMD) to the return on equity (ROE) in Islamic banks. Design/methodology/approach – The summary statistics of the ROMD and the ROE is used to make a comparison between them with a sample of nine Islamic banks, from seven countries, over the last five years. Regression analysis is also undertaken to unveil the variables affecting the behaviour of ROMD and ROE at Kuwait Finance House. Findings – The results show that the ROE tend to be at least two times higher than the ROMD. In most of the investigated cases the ROMD are more correlated to the corresponding conventional interest rate than to ROE. The regression analysis suggests that the return on assets affects more significantly the ROE than the ROMD. Originality/value – The originality of the paper resides in the size of the sample and in the design and the findings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Humanomics Emerald Publishing

A comparative study of the returns on Mudhārabah deposit and on equity in Islamic banks

Abdou Diaw; Abdoulaye Mbow
Humanomics , Volume 27 (4): 14 – Nov 1, 2011
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14 pages

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0828-8666
DOI
10.1108/08288661111181288
Publisher site
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Abstract

Purpose – The paper aims to compare the return on Mudhārabah deposits (ROMD) to the return on equity (ROE) in Islamic banks. Design/methodology/approach – The summary statistics of the ROMD and the ROE is used to make a comparison between them with a sample of nine Islamic banks, from seven countries, over the last five years. Regression analysis is also undertaken to unveil the variables affecting the behaviour of ROMD and ROE at Kuwait Finance House. Findings – The results show that the ROE tend to be at least two times higher than the ROMD. In most of the investigated cases the ROMD are more correlated to the corresponding conventional interest rate than to ROE. The regression analysis suggests that the return on assets affects more significantly the ROE than the ROMD. Originality/value – The originality of the paper resides in the size of the sample and in the design and the findings.

Journal

Humanomics – Emerald Publishing

Published: Nov 1, 2011

Keywords: Islam; Banks; Risk; Return; Mudhārabah deposits; Equity

References

  • Accounting, Auditing and Governance Standards for Islamic Financial Institutions
    AAOIFI
  • Economic consequences of accounting standards and Islamic banks
    Abdel Karim, R.A.
  • Adapting Mudhārabah financing to contemporary realities: a proposed financing structure
    Bacha, O.I.
  • Basic Econometrics
    Gujarati, D.
  • Mudhārabah as a mode of financing in Islamic banking: theory, practice, and problems
    Hasan, Z.