Determinants of Islamic Banking in Africa

The global financial crisis of 2007-2008 depicted that conventional banking has many weaknesses. Hence, there has been much debate on the strength of Islamic banking to confront such crises. There are various advantages of using Shari'ah-compliant financial products pointed out by researches. Moreover, people who abide by their religious belief are mainly those who demand such financial services. But research relating to the determinants of Islamic banking is scant. This chapter examines the determinants of Islamic Banking in Africa over the period 2005-2018. The result shows that if the share of the Muslim population is high compared to other religions, Islamic banking is better diffused. Furthermore, important determinants of Islamic banking obtained from the results are the growth rate of the country and the extent to which the financial system is developed. Interestingly, it is observed that interest rate affects the diffusion of Islamic banking as it represents an opportunity cost.