This paper aims to understand the resilience of Islamic banking by analyzing the existing literature to identify its determinants and to assess the impacts of each determinant during the COVID-19 era.
A systematic review of existing literature (SLR) published mainly in the COVID-19 era (2018–2022) is conducted using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA). Following the initial search procedures, articles were systematically selected and were subjected to a rigorous assessment to evaluate its methodological rigor and thematic relevance. From this process, a total of 138 articles were found, and 20 articles were ultimately selected to be synthesized in identifying banking, macroeconomic and risk factors that contribute to the resilience of Islamic finance during the COVID-19 pandemic.
The SLR analysis indicates that factors that are found to span across financial performance metrics such as return on assets and return on equity, are crucial for assessing the economic viability of Islamic banks, especially during the pandemic. In addition, metrics like capital adequacy ratio and bank size were identified as essential for evaluating the inherent stability and resilience of these institutions. Meanwhile, this study also highlighted the unique risk-sharing and asset-backed financial products in Islamic banking, making metrics like revenue diversification and banks income diversification are particularly relevant. Ethical and governance considerations were not overlooked; metrics such as resilience of value-based Islamic bank and management quality were found to focus on these unique aspects. Furthermore, broader banking and macroeconomic factors like liquidity asset to total asset ratio and gross domestic product were deemed crucial for understanding the economic environment in which Islamic banks operate. Risk factors like systematic risk and bank solvency risk were also discussed, albeit with a call for further exploration, especially in the context of the pandemic.
While this study has its limitations, including the scope of literature reviewed and the methodologies employed, these limitations serve as catalysts for future research. Scholars are encouraged to explore less-examined areas using diverse methodological approaches, such as longitudinal studies, to provide a more nuanced understanding of how resilience factors evolve over time. In conclusion, the resilience of Islamic banking amid the COVID-19 pandemic is a multi-dimensional construct that warrants continued academic scrutiny. This paper serves as both a synthesis of existing knowledge and a guide for future research and policy implications via multidimensional perspectives contributing to the ongoing discourse on Islamic banking resilience in a rapidly evolving economic landscape. By understanding the determinants of resilience of Islamic banking industry, Islamic financial institutions can develop products that cater to the needs for societal sustainable financial well-being for the customers, enhanced industry performance while achieving sustainable growth.
By synthesizing the existing knowledge that are based on multi-dimensional constructs, this paper seeks to shed some light on banking, macroeconomic factors how the risk-sharing features of Islamic banks affect their stability and resilience as well as customer confidence in different economic conditions and regulatory environments and while focusing on the role of Islamic banks in promoting economic development and social welfare during bearish economic times like in COVID-19 era.
This study highlights the unique business model of Islamic banks, which have distinct systemic risk profiles, and aims to identify research gaps through a systematic literature review. It focuses on various aspects such as comparative studies, regulatory impacts, product innovation, technology adoption, market expansion, diversification and crisis management and recovery. The novelty of this paper lies in providing a more comprehensive analysis of existing literature on Islamic banking resilience by incorporating a multifaceted approach. This includes a wide range of measurements related to banking, macroeconomic factors and risk considerations, all framed within a multidimensional perspective, making the findings particularly relevant in the post-COVID-19 era.
