Cost of capital of Islamic banking institutions: an empirical study of a special case

Shubber, K.J.A. and Alzafiri, E. 2008. Cost of capital of Islamic banking institutions: an empirical study of a special case. International Journal of Islamic and Middle Eastern Finance and Management. 1 (1), pp. 10-19. https://doi.org/10.1108/17538390810864223

TitleCost of capital of Islamic banking institutions: an empirical study of a special case
AuthorsShubber, K.J.A. and Alzafiri, E.
Abstract

Purpose - The paper's purpose is to ascertain how computing the cost of capital for Islamic banks may differ from the case of conventional ones.

Design/methodology/approach - The published accounts of four major Islamic banks were analysed, so as to test the set hypotheses. Also, two surveys were undertaken on this issue, one for banking officials; the other for depositors at a major Islamic bank.

Findings - For Islamic banks, it became clear that deposit accounts were not a liability, as these fell within the definition of "profit-and-loss sharing" instruments. In fact, a high-positive correlation coefficient was apparent between an Islamic bank's market value and the size of its deposits. Also, the market value of Islamic banks was clearly independent of its cost of capital.

Research limitations/implications – The two surveys expressed the views of respondents, and these could be subjective. Also, the core sample studied in depth was limited to four banks, and this could be widened in subsequent research.

Practical implications - Risk associated with deposit-taking needs to be looked at differently in the case of Islamic banking institutions. Also, return provided to shareholders came out higher than for depositors.

Originality/value - The paper sheds new light on how the cost of capital may be computed in the case of Islamic banks. Also, the relationship between depositors and shareholders is investigated, though additional research is required on this aspect.

KeywordsBanking, banks, cost of capital, Islam
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
Journal citation1 (1), pp. 10-19
ISSN1753-8394
Year2008
PublisherEmerald Publishing Limited
Digital Object Identifier (DOI)https://doi.org/10.1108/17538390810864223
Publication dates
Published2008

Related outputs

Ingredients of successful partnerships among higher education institutions: the case of the University of Westminster
Shubber, K.J.A. 2008. Ingredients of successful partnerships among higher education institutions: the case of the University of Westminster. in: Al-Hawaj, A.Y., Elali, W. and Twizell, E.H. (ed.) Higher education in the twenty-first century: issues and challenges CRC Press. pp. 143-148

Editorial: Women and the mosaic of Mid-east management
Shubber, K.J.A. 2008. Editorial: Women and the mosaic of Mid-east management. International Journal of Islamic and Middle Eastern Finance and Management. 1 (4).

Editorial: Shifting sands of Islamic finance
Shubber, K.J.A. 2008. Editorial: Shifting sands of Islamic finance. International Journal of Islamic and Middle Eastern Finance and Management. 1 (2).

Editorial: London cements leadership slot in Islamic finance
Shubber, K.J.A. 2008. Editorial: London cements leadership slot in Islamic finance. International Journal of Islamic and Middle Eastern Finance and Management. 1 (3).

Book review: the politics of Islamic finance
Shubber, K.J.A. 2008. Book review: the politics of Islamic finance. International Journal of Islamic and Middle Eastern Finance and Management. 1 (3).

Book review: Understanding Islamic banking: the value proposition that transcends cultures
Shubber, K.J.A. 2008. Book review: Understanding Islamic banking: the value proposition that transcends cultures. International Journal of Islamic and Middle Eastern Finance and Management. 1 (2).

Book review: Theoretical studies in Islamic banking and finance
Shubber, K.J.A. 2008. Book review: Theoretical studies in Islamic banking and finance. International Journal of Islamic and Middle Eastern Finance and Management. 1 (2).

Book review: Handbook of Islamic banking
Shubber, K.J.A. 2008. Book review: Handbook of Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management. 1 (2).

Book review: Globalisation and the politics of development in the Middle East
Shubber, K.J.A. 2008. Book review: Globalisation and the politics of development in the Middle East. International Journal of Islamic and Middle Eastern Finance and Management. 1 (3).

Another building stone in bridging the "great divide" of our time
Shubber, K.J.A. 2008. Another building stone in bridging the "great divide" of our time. International Journal of Islamic and Middle Eastern Finance and Management. 1 (1), pp. 5-9. https://doi.org/10.1108/17538390810864214

The Baghdad Stock Exchange: a dismal first decade - a growth path ahead?
Shubber, K.J.A. and Kadhim, T.A. 2005. The Baghdad Stock Exchange: a dismal first decade - a growth path ahead? in: Motamen-Samadian, S. (ed.) Governance and risk in emerging and global markets Basingstoke, UK Palgrave Macmillan.

Continuous time dynamic modelling of interest rates in emerging markets
Nowman, K.B. and Shubber, K.J.A. 2005. Continuous time dynamic modelling of interest rates in emerging markets. in: Motamen-Samadian, S. (ed.) Dynamic models and their applications in emerging markets Basingstoke, UK Palgrave Macmillan.

Permalink - https://westminsterresearch.westminster.ac.uk/item/9181x/cost-of-capital-of-islamic-banking-institutions-an-empirical-study-of-a-special-case


Share this

Usage statistics

90 total views
0 total downloads
These values cover views and downloads from WestminsterResearch and are for the period from September 2nd 2018, when this repository was created.