The performance of Islamic banks in the MENA region: Are specific risks a minor attribute?

Islamic banks face specific risks related to Sharia-compliant contracts. We provide an exhaustive literature review addressing the methodological issues of the measurement of performance and document the main stylised facts regarding the performance of Islamic banks (IBs) in the MENA region. We investigate 53IBs in 11 MENA countries over 2007-2014, first using cross-sectional analysis as of year 2013. A panel data model with instrumental variables estimates the impact of risks upon the returns on assets and equity of Islamic banks. Four salient results emerge: Sharia compliance exerts an ambiguous effect upon performance; Islamic specificity is a minor attribute according to the insignificant share of profit and loss sharing (PLS) contracts in total assets; there is no relationship between Sharia compliance and specific risk; loan loss provisions do not restrict to specific risks (PLS), hedging all risks.