Bankruptcy and Sustainability: A Conceptual Review on Islamic Banking Industry

Abstract

Purpose: The purpose of this paper is to access the sustainability profile of Islamic banking industry and to proposed methods for achieving it. Design/methodology/approach: The approach used in this study is to first select an appropriate bankruptcy evaluation model for Islamic banking industry, while bankruptcy is being used as a proxy for measuring economic sustainability. Because generally it is considered that bankrupt banks have weak, while non-bankrupt banks have strong economic sustainability. Moreover, ANOVA and Regression tests are proposed to examine the significance and correlations of independent variables with bankruptcy / sustainability of Islamic banking industry. Findings: The studies conducted on Islamic banks sustainability and bankruptcy are found scanty in the literature. However, this paper identified the significance of achieving strong sustainability of banking industry and linked banking activities with the success of financial system and vice versa. Secondly, this study highlighted some of the earlier bankruptcy evaluation models and also proposed proxies for measuring economic sustainability. The bankruptcy literature suggested that, Altman model for service firms is the most appropriate model for evaluating economic sustainability of Islamic banking industry. Thirdly, this study illuminated the importance and consequences of comparative bankruptcy study and also the importance of identifying the key performance indicators that effects the sustainability profile of Islamic banking industry. Research limitations/implications: Sustainability is a broader concept that deals with social, environmental, and economic aspects. However, environmental and social sustainability dimensions of Islamic banking industry are not discussed in this paper. Practical implication: The findings of the paper may have serious practical implications on the current working framework of Islamic banking industry. Moreover, this study may also serve as a launching pad in the process of developing an Islamic banking sustainability continuum model. Originality/value: The study is viable for drawing the attention to a rather neglected issue in Islamic banking, and also offers surveillance to resolve the issue.

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