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Abstract A unique feature of Islamicbanking, in theory, is its profit-and-loss sharing (PLS) paradigm.

In practice, however, we find that Islamicbanking is not very different from conventional banking. Our study on Malaysia shows that only a negligible portion of Islamic bank financing is strictly PLS based and thatIslamic deposits are not interest-free, but are closely pegged to conventional deposits. Our findings suggest that the rapid growth in Islamicbanking is largely driven by the Islamic resurgence worldwide rather than by the advantages of the PLS paradigm and that Islamic banks should be subject to regulations similar to those of their western counterparts.