Siti Nor Amira Mohamad, Amal Hayati Ishak, Darmawan

Meta-analysis of Factors Shaping Risk Management and Adoption of Equity-based Financing in Islamic Banking

Introduction

Meta-analysis of factors shaping risk management and adoption of equity-based financing in islamic banking. Meta-analysis identifies key factors for Islamic banking's equity-based financing adoption: risk perception, regulatory support, and institutional trust. Guides stronger governance and trust-building.

Abstract

Equity-based financing lies at the heart of Islamic banking’s ethical promise, yet its real-world adoption remains limited. This study brings together findings from 47 empirical studies and 129 correlations to explore what drives or hinders stakeholder engagement with contracts like Mushārakah and Mudarabah. Through meta-analysis, three consistent predictors emerge: risk perception, regulatory support, and institutional trust. Risk perception shows an evident negative influence, especially in developing economies where institutional safeguards are weaker. In contrast, strong regulatory frameworks and trust in financial institutions play enabling roles, encouraging adoption across diverse contexts. Moderator analysis reveals that economic context significantly shapes how risk is perceived, while contract type does not appear to alter adoption patterns. Robustness checks, including sensitivity analysis and Fail-Safe Number tests, confirm the reliability of these findings. Taken together, the results offer both theoretical clarity and practical direction, highlighting the need for stronger governance, transparent communication, and trust-building strategies to unlock the full potential of equity-based finance in Islamic banking. Future research should explore cultural and behavioural dimensions and track how adoption evolves as institutions mature.

Review

This meta-analysis offers a timely and significant contribution to the understanding of equity-based financing adoption in Islamic banking, a critical area given the sector's ethical foundations and the persistent gap in real-world application. By meticulously synthesizing findings from 47 empirical studies and 129 correlations, the research robustly identifies risk perception, regulatory support, and institutional trust as the most consistent predictors. The negative influence of risk perception, particularly in developing economies, and the enabling roles of strong regulatory frameworks and institutional trust, provide clear theoretical clarity. The application of moderator analysis and rigorous robustness checks, including sensitivity analysis and Fail-Safe Number tests, further bolster the reliability and credibility of these findings, making a compelling case for the identified drivers. While the study's overarching findings are well-supported and insightful, a closer examination of the underlying literature might reveal certain nuances. The identification of "cultural and behavioural dimensions" as avenues for future research implicitly suggests that these factors might be underexplored within the existing empirical studies forming the basis of this meta-analysis. Further, the finding that contract type (e.g., Mushārakah vs. Mudārabah) does not significantly alter adoption patterns is intriguing. While a robust null finding, a more explicit discussion on why these structurally distinct contracts behave similarly in terms of adoption could offer deeper insights into the aggregated challenges or perceptions of equity-based financing as a broader category, rather than just individual instruments. The practical implications of this research are substantial, providing a clear roadmap for stakeholders aiming to unlock the full potential of equity-based finance. The call for stronger governance, transparent communication, and trust-building strategies directly addresses the identified impediments and enablers. Theoretically, the study provides a consolidated framework that can guide future research into the complexities of Islamic finance adoption. The suggested future research into cultural and behavioural dimensions, alongside tracking institutional maturation, represents a logical and crucial progression, promising to enrich our understanding of how these financial models integrate into diverse socio-economic fabrics over time. Overall, this meta-analysis serves as an essential reference for academics, policymakers, and practitioners in Islamic finance.

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