Libyan Bank Perceeptions towards Islamic Finance

Abstract

This paper examines the perceptions of Libyan banks towards Islamic methods of finance and the likelihood of adoption of these non conventional products and services. A questionnaire is administered to 134 bank directors and managers using phone interviews. The results indicate that 98.5% of banks have knowledge about Islamic banking in general while specific Islamic finance products, including Musharakah, Bai muajjall and Quard Hassan, are known by 79.6% of respondents. Moreover, Quard Hassan has been practiced by 88.1% of respondents. However, most respondents are relatively uninformed regarding most other Islamic financing methods. Factor analysis is used to reduce the large number of explanatory variables used to determine attitudes towards Islamic finance to just three factors: namely, growth in the demand for funds, effective management for loans, and profitability. Discriminant analysis shows that potential growth in demand for funds is the primary motivation for the potential adoption of Islamic finance among Libyan banks. Keywords: Islamic finance; banks’ perceptions; Libya; Islamic banking.