Determinants and Outcomes of Equity-Based Financing in Islamic Banking: A Multi-Level Meta-Analytic Structural Equation Model

Abstract

This paper is a consolidation of studies on equity-based financing (EBF) in Islamic banking with a focus on analyzing some underlying reasons why EBF is still rarely implemented despite its good theoretical support. The analysis is done using Meta-Analytic Structural Equation Modelling (MASEM) on 29 empirical studies. The results show that trust and strong Shariah governance are the significant factors for the adoption of EBF, while risk perceptions and high monitoring costs are the barriers for its adoption. Your practical significance seems to be revealed in two more finding that EBF has positive impact on customer satisfaction and bank performance. Concerns about trust arise in how these financing methods apply in various settings, depending on factors like religiosity and the strength or type of regulatory frameworks. Governance and regulatory frameworks could be the key to making theoretical promises a reality in Islamic Finance (IF), findings from a wide-ranging study by the Institute for International Finance suggest.