Banks that offer 'Islamic banking' options actually end up taking way bigger risks with their loans.
March 26, 2026
Original Paper
The Impact of Islamic Banking Windows on Lending Behavior and Credit Risk in Tanzania
SSRN · 6342838
The Takeaway
While Islamic banking is often perceived as conservative or stabilizing, this study shows it acts as a massive credit booster, increasing lending volume by 28% and raising the parent bank's non-performing loan ratio. It reveals that the move toward 'non-interest' banking is less about stability and more about aggressive market expansion into high-risk sectors like agriculture.
From the abstract
<div> <span>This study investigates the impact of Islamic banking windows on lending behavior and credit risk in Tanzanian commercial banks, utilizing panel data from 25 banks over the period 2018-2024. Following the pioneering entry of Islamic windows by major conventional banks in 2021 and the subsequent Banking and Financial Institutions (Non-Interest Banking Business) Regulations, 2025, this research employs Feasible Generalized Least Squares (FGLS), System Generalized Method of Moments (GMM