Strength of Bank-Firm Nexus: Evidence from Islamic and Conventional Banks

This article discovers that whether there is a closer liaison between Islamic banks and non-financial firms, or conventional banks and non-financial firms, specifically in Muslim countries economies where dual banking systems exist. Based on a sample, drawn from a cross-section of OIC countries, the results of univariate analysis on our full sample shows that mean values of conventional bank-firm relationship variables are higher than the mean values of Islamic bank-firm relationship variables, suggesting the competitive edge of conventional banks over Islamic banks. However, the results of a sub-sample where fraction of Islamic banks operating in a country is larger than conventional banks provide evidence in favour of Islamic banks. As per the recent report of IMF, Islamic banks are growing at a considerable pace in Muslim countries, so it might be estimated that they contain a stronger potential to surpass their conventional counterparts while building and maintaining a closer nexus with the non-financial firms operating in these countries.