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Islamic Banking

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A COMPARISON BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS
Mohamed Hashem Rashwan1 The British University in Egypt

ABSTRACT
This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate.

INTRODUCTION

Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More than 200 Islamic Banks operate in over than 70 countries concentrated in the MENA region and many western countries (Hassan & lewis, 2007). Obviously, the Islamic Banking sector attracts more attention during the financial crisis started in 2008. This attention is justified by the minor effect of the crisis on the financial institutions that comply to Islamic sharia’a (laws) (Chapra, 2008). In...

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