The Role of Culture on Islamic Finance: A Comparative Analysis from Islamic Finance Permitting Countries

Despite the inclusion of cultural elements in hundreds of business and management research studies, there have been relatively few studies in finance, and Islamic finance just recently seems to have discovered the impact of culture. Through this study, culture has been proposed as the next possible means to improve the Islamic finance industry. By utilizing data from 2012 to 2019, this paper aims to empirically examine the effects of culture, proxied by education, on Islamic finance in 45 Islamic finance-permitting countries by using generalized method of moments (GMM) estimators. We find significant effects of culture in Islamic finance in all regions except for developed countries and other Arab countries, which are still in their infancy in the field of Islamic finance. Developed countries need to change their educational system in Islamic finance to reflect the real, Shariah-based ethics of Islam rather than secular humanism, while other Arab countries should pay more attention to the Islamic finance industry. Thus, it is important to consider the culture and open the door to the new discipline of "Islamic cultural finance" in the development of the Islamic finance industry.