Risk Premium of Islam: Is there an additional charge of Islamic banking services

Abstract

In this study, a comparative analysis of participation (Islamic) banks and liberal (conventional) banks within the banking system in Turkey in terms of distributing proft share rate applied by liberal banks and deposit interest rates applied by liberal banks is conducted. The data used for the analyses include annualized deposit interest rates implemented by liberal banks and annualized proft share rates implemented by participation banks within the frequency of monthly, quarterly, semi-annually and annually for the period 2002-2019. These rates are examined separately for Turkish Lira, EU Euro and US Dollar. Basic statistical inferences, correlation analysis, nonparametric difference tests, and VAR Granger causality analysis were applied in the study. It is found that proft share rates implemented by participation banks are less comptitive than those of equivalent deposit rates implemented by liberal banks in Turkey. The results implied that Islam society has a disadvantage of using Islamic Banking System in Turkey. It this paper, this situation is defned as risk premium of Islam implying that there is an opportunity cost for Muslim in islamic banking system.