Are Islamic Windows of Conventional Banks Still Relevant in the Landscape of Islamic Banking?

Abstract

Abstract Purpose: This study provides an insight into the current status of Islamic windows and their relevance in meeting the requirements of the Muslim population and investors who are attracted to ethical banking products that are compatible with Islamic teachings. Design/Methodology/Approach: The paper utilizes the published works on Islamic windows to specifically address the economic motives for conventional banks in setting up Islamic windows, the strategic vision of shariah scholars in permitting Islamic windows, the legal and shariah challenges between commitment to religious teachings and innovation in the Islamic business model, and the impact of Islamic windows on the financial performance and market share of host conventional banks. Findings: The study identifies three legal forms in establishing Islamic banking in a country. Some countries only allow full-fledged Islamic banks to operate, others allow only Islamic windows within the conventional banks and, yet others allow dual banking system, i.e. full-fledged Islamic banks and conventional banks with a separate Islamic bank subsidiary. Despite some reservations about their operational credibility in terms of their compatibility with the teachings of shariah, studies conducted in countries that allow the operation of Islamic windows have shown that their economic performance and the quality of their services are better than full-fledged Islamic banks but, concomitantly they increase the competition in the se

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