Impact of corruption on bank profitability: an analysis of Islamic banks

Abstract

The great influx of Islamic finance to the global scene has raised an interesting notion about its behaviour towards corruption. As the practice of corruption can be found in almost any corner of the world, it is most likely that Islamic banks may have been exposed to certain unscrupulous practices. This brings forth an important yet interesting discussion as sometimes corruption becomes unavoidable and this is something that is prohibited in Islam, proving to be a conflict of interest. This novel study sought to econometrically analyse the impact of corruption on Islamic bank profitability in highly corrupt countries. Using a panel dataset comprising 300 observations of 10 unique banks over the 2000–2010 time period panel least squared regression results reveal that corruption has a significant positive impact on bank profitability. The results lend some credence to implications that banks are thriving from corruption in the country.