Islamic finance performance and its effect on the economic growth in the Asian market

Abstract

Purpose - the thesis will be studying and analyzing the financial and stock market in the presence of Islamic finance in Asia as a first step and in the Saudi Arabian market as a second step, before overlooking the status of the Lebanese Islamic banks. Design/methodology/approach: after defining Islamic finance and explaining its laws and regulations and the instruments used, Islamic finance will be compared to conventional finance. The results will be based on data collected from both: - Islamic and non-Islamic financial markets (Asian countries) during, before and after the financial crisis of 2008 using two sub periods. - And from a market where both Islamic and conventional finance coexist (Saudi Arabia). The thesis will also study the Lebanese Islamic banking sector. Findings: the comparison between Islamic and conventional indices regarding volatility and yield that took place during normal and crisis times helped us understand that Islamic finance can be the better alternative during crisis times. Also the Saudi Arabia model showed that both Islamic and conventional finance can coexist in the same market and proved furthermore the advantage of Islamic finance during crisis periods and under the same market conditions. Research limitations/implications: the research may be limited to the Asian market, however its results can be generalized to include any market witnessing the emergence of Islamic finance. The data used in the Eviews model is limited to five years of daily observations as it was the maximum amount of data available on the Bloomberg platform. And contains all the licensed banks in Saudi Arabia except for one bank: The National Commercial Bank (NCB), since there is no available data related to the bank before the year 2014 following its decision to convert to a fully compliant Shariah bank. Practical implications: This Study may help us better understand Islamic finance and its importance during normal and crisis times as the results will show its advantage in terms of return and volatility especially during crisis periods, and its higher impact on economic growth when compared to conventional finance. Also the study will be predicting the future possibilities for Islamic finance in markets where it's still emerging such as Lebanon. Originality/value: studies comparing Islamic and conventional markets took place before, but this may be the first one to perform the comparison in the Saudi Arabian market where both Islamic and conventional finance coexist using an OLS regression model.