Macroprudential policy and tools in dual banking system : insights from Islamic finance literature

Abstract EN

The current global financial meltdown has highlighted the need of promoting financial stability through better regulation of financial institutions.

The contentious debate is strongly emphasizing in particular on macroprudential tools, their implementation, and effectiveness.

This paper provides a critical review of theoretical and empirical research on Islamic finance literature that have investigated macroprudential policy and its impact.

In particular, the theoretical and empirical literature on the impact of macroprudential policy to the financial stability and risk-taking of Islamic and conventional financial system.

The paper has identified studies over a sixteen-year from 2000 to 2016 related to Islamic finance literature by utilize an analytical evaluative framework as its main investigative tool.

The findings suggests that only limited empirical research and analytical tools were available on macroprudential policy framework in Islamic financial system due to the fact that Islamic financial system is still in infancy stage and far from being able to create analytical framework.

The theoretical studies of macroprudential policy in Islamic finance points to mixed results, while empirical research of macroprudential policy are not conclusive