Muslim Business and Economics Review

ESG Controversies and Bank Risk-taking: Islamic vs Conventional Banks

Kemala Putri Ayunda, Yunice Karina Tumewang — Tue, 30 Dec 2025 00:00:00 +0000

Environmental, social, and governance (ESG) controversies have gained increasing attention due to their potential financial and reputational risks, particularly within the banking sector. As regulatory pressures and stakeholder expectations escalate, understanding the impact of ESG controversies on banks' risk-taking behavior is critical for financial stability and sustainable banking practices. This study investigates the relationship between ESG controversies and bank risk-taking, comparing Islamic and conventional banks within the Organisation of Islamic Cooperation (OIC) countries. Using a panel dataset covering 35 Islamic banks and 68 conventional banks across 11 OIC countries between 2013 and 2022, we apply a fixed-effects regression model to assess the influence of ESG controversy exposure on bank risk. The results demonstrate that Islamic banks are significantly less exposed to ESG controversies than conventional banks, reflecting the normative ethical underpinnings of Islamic finance. However, Islamic banks exhibit higher risk levels compared to their conventional counterparts. The regression analysis also reveals that, in both the full sample and the conventional bank sub-sample, fewer ESG controversies are significantly associated with lower risk-taking, thereby enhancing bank stability. However, this effect is absent in Islamic banks. These results highlight the critical role of institutional, cultural, and regulatory contexts in shaping how ESG controversies influence bank behavior. While ESG controversies may act as effective risk control signals in conventional banking systems, their impact appears attenuated in Islamic banks, where ethical principles are already embedded in financial practices.

Islamic Financial Development, Country Risk, and Human Development: Do They Shape Income Inequality in OIC Countries?

Hapid Durohman, Fajar Andrian Sutisna, Danial Muhammad Wirdyansyah — Tue, 30 Dec 2025 09:39:21 +0000

Income inequality remains a persistent development issue across member countries of the Organization of Islamic Cooperation (OIC), irrespective of their income level. The Islamic financial system, built upon Shariah principles of fairness, risk-sharing, and ethical finance, offers a viable alternative to conventional systems in addressing inequality. This study investigates the long-run effects of Islamic financial development, human development, and country risk on income inequality in OIC countries and empirically tests the Islamic Financial Kuznets Curve (IFKC) hypothesis. Using balanced panel data from 13 OIC member states over the period 2013–2023, the analysis applies Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators using STATA17. The results confirm that Islamic financial development significantly reduces income inequality and follows a non-linear (inverted U-shaped) relationship, validating the IFKC hypothesis. Human development exhibits a mixed effect: while DOLS and non-linear models suggest an equalizing impact, FMOLS results indicate that early gains may benefit elite groups disproportionately, reflecting institutional asymmetries. Country risk consistently exacerbates inequality across all models. Moreover, interaction effects reveal that institutional quality moderates the relationship between human development, country risk, and inequality. In some cases, even stronger institutions may fail to ensure equity when they lack inclusivity. These findings highlight the importance of aligning Islamic financial expansion with inclusive governance and social development policies. For OIC policymakers, achieving sustainable and inclusive growth requires synergy between financial deepening, human development, and institutional transformation

Keywords: Islamic financial development, Income inequality, Human development, Country risk, Islamic Financial Kuznets Curve

Halal Fashion E-Commerce: Driving Social Inclusion in Peureulak

Tue, 30 Dec 2025 09:45:21 +0000

This study investigated the effectiveness of e-commerce in boosting halal fashion sales in Peureulak, Aceh, Indonesia, exploring its potential to enhance economic opportunities in the region. Employing a qualitative field research approach, data was gathered through interviews with key informants, including owners, employees, and buyers of halal fashion businesses in Peureulak. The research examined online strategies and their impact on sales. The findings revealed that e-commerce significantly increased halal fashion sales in Peureulak by expanding market reach beyond local boundaries and facilitating effective promotion and clear product information dissemination. Key success factors included ease of online access, high-quality product presentation, competitive pricing, trustworthy customer service, diverse payment options like Cash on Delivery (COD), and positive customer reviews. While local sales remained primarily conventional, e-commerce successfully attracted external customers, substantially supporting business growth. The study suggests that optimizing digital platforms like TikTok, Shoppe, and Instagram, alongside prioritizing rapid customer service, attractive promotions, and reliable product quality, are crucial strategies for enhancing e-commerce effectiveness in the halal fashion sector. These findings highlight the potential of e-commerce to drive economic growth and broader social inclusion within similar contexts in OIC countries by leveraging local strengths and expanding market access.

State Religion and Corruption in Islamic Countries: An Empirical Examination

Arif Rahman Hakim, Putro Samudro — Tue, 30 Dec 2025 09:51:15 +0000

Corruption remains pervasive in many Islamic countries, despite the ethical values and integrity often associated with religious norms. This study investigates the state religion's impact on corruption levels in member countries of the Organisation of Islamic Cooperation (OIC). Utilizing cross-sectional data from 53 OIC countries and employing the Ordinary Least Squares (OLS) regression method, the study finds that the percentage of the Muslim population has a negative but statistically weak effect on the Corruption Perceptions Index (CPI). Conversely, the adoption of Islam as a state religion significantly increases corruption, suggesting that religious institutionalization may undermine governance quality. These results challenge prior assumptions that religiosity inherently reduces corruption. Instead, the study highlights that institutional framework, rather than religious adherence, shape governance outcomes. The findings underscore the need for anti-corruption efforts in Islamic countries to prioritize institutional reforms and economic policies that enhance transparency and accountability, rather than relying solely on religious values.

Keywords: Corruption, Islam, State Religion, OIC

Trump 2.0: Unpacking the Potential Economic Impacts on OIC Economies

Riadhus Shufa Al Khairi, Muhammad Ali Mustofa — Tue, 30 Dec 2025 09:59:40 +0000

Donald Trump's trade policies during his presidency were characterized by protectionist measures, including tariff increases and trade disputes with major economies. Following his re-election, similar policies could resurface, impacting global trade dynamics. This paper aims to analyze the potential economic consequences of Trump's second leadership on OIC (Organization of Islamic Cooperation) economies, focusing on three key policies: (1) a tariff on steel and aluminum, (2) a trade war with China, and (3) geopolitical tensions with BRICS nations. The GTAP (Global Trade Analysis Project) model is employed to simulate the short-run effects of these policies on GDP, trade balance, and welfare in OIC countries. The results suggest that increased tariffs and trade conflicts may lead to shifts in global trade patterns, with potential negative spillover effects on OIC economies, particularly those with strong trade ties to the US, China, and BRICS. Trade diversion effects are also observed, indicating possible shifts in export flows. The findings provide insights into how OIC nations might navigate the uncertainties of a renewed Trump administration's economic policies.

Keywords: Donald Trump, OIC economies, Tariff, GTAP.

ESG on Stability and Bank Performance: The Moderating Role of Diversity and Inclusion in OIC Countries

Muhammad Irsyad, Fauziah Chairiyati — Tue, 30 Dec 2025 10:04:38 +0000

This study analyses the impact of environmental, social and governance (ESG) performance on the stability and performance of Islamic banks, considering the moderating role of diversity and inclusion. Using panel data from 60 Islamic banks in 11 Organisation of Islamic Cooperation (OIC) countries during the period 2014-2023, the research finds that ESG performance positively affects the stability and performance of Islamic banks, confirming the role of sustainability in enhancing the financial resilience of the Islamic banking sector. However, this study also finds that diversity and inclusion weakens the positive impact of ESG performance on the stability and performance of Islamic banks. Additional analysis shows that these results are consistent only in the environmental and social pillars. These findings highlight the importance of managing diversity and inclusion to enhance ESG implementation in Islamic banks. Poorly managed diversity and inclusion efforts may weaken ESG effectiveness, hindering performance and stability. For stakeholders, including investors and regulators, fostering inclusion is essential to support sustainability and long-term stability.

Hybrid Financial Innovation: A Sustainable Economic Recovery Model for OIC Nations

Tue, 30 Dec 2025 10:12:29 +0000

ABSTRACT

Global financial shocks, such as COVID-19 and other systematic vulnerabilities, dramatically threaten the world's economic resilience. These recessional events have revealed economic weakness, especially in OIC and other developing nations. resulting in a massive amount of job losses, disturbance in manufacturing, fiscal imbalances, recessions, and deflationary issues. Existing economic recovery strategies fail to ensure long-term financial sustainability and equitable development. This study examines a comprehensive framework to disclose a resilient economic recovery model that mitigates shocks and leads to sustainability in OIC countries. This study proposes a hybrid financial innovation model that ascertains government-backed crisis funds with Islamic financing mechanisms. Which can ensure sustainable agricultural funding and promote long-term economic resilience. It will save a shocked economy from recessions by its model mechanism. Observing Pakistan, Indonesia, Saudi Arabia, Turkey, Bangladesh, Egypt, Iran, and Malaysia, this finding acknowledged why fund liquidity is the origin of origins. This qualitative research approach will combine sustainable economic modeling and a consistent funding framework which adaptable to OIC nations. These findings will work as a practical roadmap for policymakers, ensuring that agricultural financing remains stable during economic shocks and recessional periods by the support of universal financial strategies. Additionally, this research offers a model that contributes to long-term resilience and economic stability. The findings provide policymakers with a definitive framework for alleviating future crises, guaranteeing fiscal sustainability, and enabling OIC states to convert economic weaknesses into strategic advantages.

Keywords: Hybrid financial model, sustainable funding, Islamic Finance, OIC Nations, Universal Shock Fund.