Integration of Islamic and Conventional Banking: Competitive Dynamics and Market Efficiency: Article Review

The Islamic and conventional banking systems coexists resulting a unique environment of dual banking where opportunities and challenges for financial market efficiency exist with competitive dynamics. The literature on Islamic and conventional banking systems, related competitive interactions, market efficiency implications and determinants of coexistence is reviewed. By reviewing empirical and theoretical literature, we have identified several important themes in dual banking systems such as market segmentation, (in)efficiency convergence, cross-effects of competition, and regulatory issues. The results indicate that there are possibilities for coexistence between Islamic and conventional banks, yet the patterns of their integration differ greatly under different market conditions and regulatory environments. The review offers implications for research involving the long-term sustenance of dual banking and its effect on overall financial system stability. This paper does have one contribution to the developing literature on alternative banking forms and some policy implications for regulators and interest groups promoting dual bank systems.