The Impact of Regulatory Compliance on the Growth of Islamic Banking

Abstract

In particular, this research uncovers the correlation between Islamic banking regulatory compliance and its impact on the growth of a key performance indicator; such as profitability, market share and customer acquisition rates. Within Islamic banks, the need for following legislative standards prevails over anything else in ensuring stability and credibility among the financial sector. Taking a quantitative approach to this study, I analyze data sampled from Islamic banks across the globe to determine the effect compliance level has on growth metrics. To uncover relationship between regulatory compliance and growth indicators, descriptive statistics, correlation analysis, and regression models were used. Results indicate robust positive relationship with compliance and growth such that high compliance levels are strongly related to large market share, profitability and customer acquisition rates. For instance, regression analysis shows that an increase in profitability (ROA) is largely determined by regulatory compliance, a substantial share of which is explained by this factor. Positive correlation from market share suggested that, not only does the regulatory adherence pick up the operational integrity, it boosts competitive advantages in the financial sector.We provide novel contribution to the field of Islamic finance by showing the tangible benefits of regulatory compliance and highlighting it as a viable strategic factor for the growth of the Islamic banks. Islamic banks can increase their credibility, improve financial performance and increase their market talent by aligning their operations with regulatory requirements. By doing this, research advocates integration of regulatory frameworks as a central point of the Islamic banking strategy that can promote sustainability and resiliency in Islamic banking in the face of the shifting global financial environment.

Keywords: Regulatory Compliance, Growth, Islamic Banking, Financial Environment