Efficiency of Assets and Liabilities Management in Islamic Banking System

In this paper, we are going to consider assets and liabilities management (ALM) structure and instrument in Islamic banking. Since in Islamic banking depositors take partnership in benefits of bank, Islamic banking follows to maximizing benefits of beneficiaries such as depositors. Therefore, there are dissimilarities between ALM approaches in Islamic banking and conventional banking. First, this dissimilarity comes from differences on accounting system in Islamic banking in comparison to conventional banking. Secondly, usury illegalness and its related jurisprudence specifications indicate that time is not a sole effective factor on increasing equity (deposited capital) return. Therefore, profit and loss sharing resulted from investment in real economy sector is the essential base in monetary transactions in this system. These two important factors are significant factors in the Islamic ALM structure. In this paper we consider the influences of these factors in two banking approaches for creating economic value added (EVA). Comparison of financial indices for the two type of banking, the results lead us to conclude that Islamic banking is more efficient than conventional banking.