Developing economy banking: the case of Islamic banks

Abstract

By 2003, there was a total of 176 Islamic banks around the globe with their total assets close to $147 billion. This article shows that this form of specialized banking may help in promoting growth in these developing economies. During the transition phase of a developing growth economy to a full fledged market based economy many structural changes are required in its financial institutions, especially since the role of a financial intermediary in supplying funds to growing new industries is crucial. At the same time, the potential for destabilization resulting from improper resource allocation, due to either faulty risk assessment or the design of the contract, could be significant. Also, this article examines the implementation of an Islamic banking system and how Islamic banks can provide liquidity and aid in the money creation process through offering transactions accounts with compensation for inflation to risk‐avoiding depositors.

Citation

Ghannadian, F.F. and Goswami, G. (2004), "Developing economy banking: the case of Islamic banks", International Journal of Social Economics, Vol. 31 No. 8, pp. 740-752. https://doi.org/10.1108/03068290410546002