Islamic banking and economic development (Ph.D. Dissertation)

This study examines issues relating to the viability and developmental effect of Islamic banking in its first decade, and offers policy recommendations with respect to profit performance, rates, and non-pricing strategies. The rejection of interest inhibits banks' abilities to gain short-term earnings, given that interest-based money market instruments are prohibited. How can Islamic banks overcome this deficiency in their earnings prospects? Why do Islamic banks move away from projects toward collateral-based lending and trade financing? Financial laws need to be adapted to allow Islamic banking to compete with conventional institutions in a neutral environment. Islamic banks should benefit from the same tax exemption on profit-sharing that conventional banks receive on interest earned. In some cases Islamic banks have a difficult time competing with conventional banks on deposit rates. One way to become more competitive and reach out to customers of faith may be to expand branch ope