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Is Islamic Banking in Turkey really interest-free?

Ercan, Harun, Karahanoglu, Ilhami and Walter, György (2021) Is Islamic Banking in Turkey really interest-free? Society and Economy, 4 (43). pp. 391-405. DOI 10.1556/204.2021.00016

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Official URL: https://doi.org/10.1556/204.2021.00016


Abstract

Islamic Finance receives more attention due to the growing need for financial services in countries with a Muslim population. However, the rules of Islam and its applications in daily life cause conflicts in today’s conventional financial system. Since interest gains are prohibited in Islam according to the Quran, Islamic banks develop and use interest-free methods, unlike the conventional banking system. Islamic Finance introduced profit-sharing ratios to replace interest rates and to increase the participation of religious investors in the financial system. In this research, we compare interest rates with profit-sharing ratios in the Turkish banking market. We use wavelet and historical correlation analysis as a new methodology in evaluating the association between these two factors. Although it is presumed that Islamic banks operate as interest-free banks, our analysis confirms former studies and finds that profit-sharing ratios are highly correlated and coherent with interest rates in Turkey. We also find small differences among Islamic banks on how quickly profit-sharing ratios follow the market interest rate changes.

Item Type:Article
Uncontrolled Keywords:Islamic finance, banking, wavelet, correlation, profit-loss sharing, Turkey
JEL classification:E44 - Financial Markets and the Macroeconomy
F30 - International Finance: General
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Divisions:Faculty of Business Administration > Institute of Finance and Accounting > Department of Finance
Subjects:Finance
DOI:10.1556/204.2021.00016
ID Code:7061
Deposited By: Alexa Horváth
Deposited On:07 Dec 2021 08:40
Last Modified:07 Dec 2021 08:40

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