ANÁLISIS DE COSTOS

The concept of deposit insurance is relatively new to the Islamic banking system. Until recently, the majority of jurisdictions either did not have an explicit deposit insurance scheme or the coverage of Islamic deposits was arranged under a conventional deposit insurance.

The idea of a separate and Sharia-compliant deposit insurance scheme first came into existence in the Turkish banking system. The “special finance houses” were al- lowed to have their own religious deposit insurance scheme as a separate arrangement operating side by side with the conventional deposit insurance fund in 2001. The an- nouncement and the immediate introduction of this scheme were largely attributed to the bank run episode of “Ihlas Special Finance House” during the crisis of the Turk- ish banking system due to Sharia misconduct in 2001. However, the operation of this arrangement did not last long. In December 2005, upon enactment of the Banking Act No.541, special finance houses were given the status of Islamic banks and the Islamic deposit insurance fund was transferred to the Savings and Deposit Insurance Fund (SDIF), the country’s conventional deposit Insurance system.

In Malaysia, the adoption of a deposit insurance scheme for the overall banking system was managed in 2005. Former implicit guarantees were replaced by the dual deposit insurance scheme. In other words, the administration of the Islamic and conventional deposits was separate since from the beginning. To this end, the prin- cipal contract structure of the Malaysian Islamic deposit insurance was decided to be Kafalah bil ’Ujr (guarantee with fee), in which Islamic banking institutions pay a fee in the form of annual premiums in return for a deposit insurance fund assuming the obligation of reimbursing insured depositors.

Bahrain was the first country to provide insurance to Islamic banks under the conventional deposit insurance system. This practice was abandoned in 2010. The

deposit insurance reform of 2010 aimed at replacing the current post-funded scheme with a pre-funded scheme. Moreover, the old scheme was revised and the administra- tion of the Islamic deposit insurance fund was separated. The administration of the fund responsible for the Islamic banking system assumed aTakaful(mutual guarantee) principle.

For Kuwait, Indonesia and Jordan, the announcement of the separate deposit Is- lamic deposit insurance scheme can largely be attributed to external reasons. In the years after the global financial crisis, the Basel Committee of Banking Supervision (BCBS) and the International Association of Deposit Insurers (IADI) produced the “Core Principles for Effective Deposit Insurance Systems” in November 2014, empha- sizing the need to establish “Islamic deposit insurance systems . . . for the protection of Islamic deposits in accordance with Islamic principles and rules.” Subsequently, Jordan, Indonesia and Kuwait made the announcements of creating a separate deposit insurance framework for Islamic deposits to ensure their Sharia-compliant adminis- tration (Abdelhady (2015); Central Bank of Kuwait (2016)).

Importantly, there is no anecdotal evidence that separation announcements were part of a bigger package of financial reforms across these jurisdictions. This ensures that another financial reform confounding the separation event is highly unlikely. It is worth mentioning that other jurisdictions such as Oman and Qatar also announced the establishment of a Sharia-compliant deposit insurance scheme in order to meet the “Core Principles” in 2015. However, so far, they lack an explicit deposit insurance scheme for their banking system, making the event of separation irrelevant for them. Therefore, I concentrate on all dual banking systems with an explicit deposit insur- ance scheme covering Islamic banks. Data availability restricts my analysis to Bahrain, Jordan, Indonesia, Kuwait, Malaysia and Turkey. The time span of the analysis is de- termined by the data limitations and the fact that Kuwait implemented an explicit deposit insurance scheme in 2007. Therefore, I focus on the time period of 2007-2015. I collect yearly balance sheet and income statement information from the Islamic banks of these jurisdictions by utilizing the annual reports either published on the

websites of the banks or by contacting them by telephone. Previous studies (Beck et al. (2013); Abedifar et al. (2013)), utilize the Bankscope dataset to study Islamic banking. However, it is not possible to obtain the information specifically on PLS accounts in Bankscope. Moreover, Bankscope provides limited information on the breakdown of aggregate deposit returns across deposit categories. As I specifically focus on deposit accounts’ PLS feature, I hand-collect annual reports of banks, where I can observe information broken down based on different deposit categories. I do so by systematically reviewing banks’ websites. Wherever the information is not available, I contact banks’ officers by telephone or personal bilateral meetings.

Several countries in my sample have conventional banks with Islamic windows. I exclude those banks from my analysis as it is not possible to observe Islamic ac- counts separately in these banks’ annual reports. Moreover, Indonesia has established regional Islamic banks, for which annual reports are not available.8

In brief, I end up with 47 Islamic banks from 6 dual banking systems. Despite the above-mentioned limitations, my sample covers at least 81% of all Islamic banks in terms of bank size in individual dual banking systems.9