21 Oct 2015 : Dean of Graduate Studies Prof Mansor Ibrahim recently presented a paper at the “G20 Global Islamic Finance Conference: Benefits and Opportunities” held in Istanbul. 

Presenters at G20 Global Islamic Finance Conference

In his paper, “Business Cycle and Bank Lending Procyclicality in a Dual Banking System”, Prof Mansor presented a study on bank lending behaviour over the business cycle in a dual banking system as practiced in Malaysia. The objective of the study is to ascertain whether Islamic banks have a role in stabilising credit.  The study makes use of unbalanced panel data of 21 conventional banks and 16 Islamic banks covering mostly the period 2001-2013. 

“Applying dynamic GMM estimators, we find the aggregate loans by banks to be pro-cyclical in conformity with existing studies.  However, when we segregate the lending/financing behaviour of conventional and Islamic banks, the cyclicality of bank lending seems to be true only for conventional banks.  As for the Islamic banks, the business cycle does not seem to affect their financing decisions.  Indeed, there is indication that the Islamic banks in general and the full-fledged Islamic banks in particular can even be counter-cyclical in their financing decisions.  This conclusion is fairly robust to a different loan measure, alternative model specifications, and to an alternative business cycle measure.  Hence, our results provide further support to the “stability” view of the Islamic banks in that they have the ability to stabilise credit,” Prof Mansor said.

Organised by the Central Bank of Turkey, the conference aimed to provide the grounds for policy makers, sector participants and academicians for a thorough discussion of the different aspects of Islamic finance and its interactions with financial stability, financial inclusion, and SME Financing. Among the topics discussed were :

• Shedding light on the prevailing role of Islamic finance on financial stability.
• Risk sharing and its implications for financial stability as well as developing a comparative approach to risk in Islamic finance and its integration with the global financial system.
• The contribution of Islamic finance to financial inclusion.
• SME financing from the Islamic point of view.