Interest Rate Risk in Interest-free Banks An Empirical Research on Turkish Participation Banks
Journal Title: Türkiye islam iktisadı dergisi - Year 2018, Vol 5, Issue 1
Abstract
Participation banks, which are globally called Islamic Banks or interest-free banks, basically receive funds based on profit-loss sharing principle and make loans via purchasing a commodity or a service and selling it to customers for a higher price (murabaha method) or profit-loss sharing investment contracts (mudarabah or musharakah method). In literature, most of theoretical studies suggest that interest-free banks’ business model is based on profit-lost sharing principles and therefore unlike conventional banks these institutions are not exposed to interest rate risk. Conversely some empirical studies suggest that Islamic banks’ profitability is affected by market interest rates and these institutions are exposed to interest rate risk. In this study, with reference to Basel Committee’s definition of interest rate risk, effects of market interest rate fluctuation on the profitability of Turkish Participation Banks has been analyzed with Seemingly Unrelated Regression method for the period between June 2005 and June 2016. It is found that there is a significant relationship between the profitability of the participation banks and interest rate changes and therefore each institution is exposed to the interest rate risk at different levels.
Authors and Affiliations
İlker Koç
Keywords
Related Articles
- EP ID EP300531
- DOI 10.26414/tujise.2018.5.1.89-107
- Views 117
- Downloads 0
THE CONTRIBUTION OF W AQF INSTITUTIONS IN MALAYSIA AND TURKEY IN IMPROVING THE SOCIO-ECONOMIC CONDITIONS OF THE SOCIETY
It has been widely acknowledged that waqf institutions play an important role in the socio-economic development of the Muslim Ummah in the Islamic history. This paper elaborates the contribution of selected waqaf entitie...
Al-Ghazâlî on Justice and Social Justice
As is suggested by its title the main purpose of this study is a presentation, analysis and evaluation of al-Ghazâlî’s ideas on justice and social justice. However, in the meantime we shall have an opportunity to shed so...
Ibn Khaldun’s Theory of Taxation and its Relevance
Ibn Khaldun, the North African versatile genius scholar of fourteenth century produced his famous work ‘al-Muqaddimah’ (the Introduction) which is considered as one of the most sublime and intellectual achievements of th...
ISLAMIC FINANCE DEVELOPMENT AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM TURKEY
This work is a study on Islamic finance development and economic growth nexus for Turkey. It employs the econometric methods of unit root, co-integration, and Granger causality in a VECM framework; and the results, which...
Ghazali, Justice and Social Justice
Justice, particularly social justice is one of the most significant challenges in today’s capitalist system based world. More and more scholars and researchers are stressing on social finance as an alternative to the exi...