Trust Crisis in Islamic Banking Empirical Evidence Using Structural Equations Modeling

This paper studies the trust crisis of the Islamic banking industry through a comparative approach. While Islamic banking harks back to the maxims stemming from Islamic law (i.e., poverty alleviation, equitability, and social justice), little is known about its failure in terms of trust. This paper is a first attempt to model the variables explaining the trust crisis by comparing Saudi Arabian and Tunisian Islamic banking industries. The empirical design is based on a questionnaire analyzed using structural equations modeling. The empirical findings show that the trust is heterogeneously assessed in the two cultural contexts. Various measures can be enforced to strengthen the trust in Islamic banks in both countries. Examples of interesting measures are related to Islamic products development and favorable regulatory reforms that need to be ‘unleashed’ to maintain the trust and sustain the competitiveness and growth of Islamic banks