Interbank offered rates in Islamic countries: Is the Islamic benchmarkdifferent from the conventional benchmarks?

tMotivated by the size and the growth of the global Islamic financial services industry, 17 Islamic Banksin six Islamic countries, in conjunction with Thompson Reuters, developed an Islamic Interbank Bench-mark Rate (IIBR, hereafter) to address the Sharia compliance requirements of Islamic banks in the moneymarket. This paper examines to what extent this newly introduced monetary tool differs from the con-ventional interbank rates used in the countries of contributing banks to the IIBR. We use cointegrationanalysis, Granger causality tests and Vector Autoregressive Models to investigate the dynamics and theinter-temporal linkages between the Islamic and conventional interbank benchmarks in five countriesfrom Gulf Cooperation Council (GCC, hereafter) region. Results show that the IIBR exhibits a long-run rela-tionship with the conventional rates and fails to be independently determined. Our findings advocatealso that market conditions such as oil prices and inflation do not contribute to the dynamics betweenthe IIBR and the conventional interest-based interbank benchmarks