An Appraisal of the Role of Islamic Banking Development and Economic Growth

Authors

  • Talat Hussain Assistant Professor, Department of Banking and Finance, University of Management and Technology, Lahore
  • Noman Arshed Lecturer, Department of Economics, University of Management and Technology, Lahore
  • Rukhsana Kalim Professor, Department of Economics, University of Management and Technology, Lahore

DOI:

https://doi.org/10.34260/jaebs.4410

Keywords:

Capital Structure, Financial Penetration, Financial Inclusion, Income Integration

Abstract

Literature is well-versed with the contribution of financial inclusion from the deposit and financing size and its role in economic growth. These contributions include a boost in economic transactions and efficient resource mobilization. Islamic financial system is different from conventional banking as it distributes the risk equitably and promotes fairness in dealings. It helps in the integration of business gains as a borrower of Islamic capital with the earnings of savers as depositors. This study has proposed two channels via which Islamic financial development may incur growth. First is bank financing penetration, and second is depositor financial inclusion. Based on the data of 41 full-fledged Islamic banks between 2012 and 2017, the results show that both increases in bank and depositor returns have a growth-promoting effect. This prompts the policymakers with new insights. Policymakers should increase Islamic banking penetration to different sectors and regulate for increased extraction of the depositor contribution from the banking financing activity.

Published

2020-12-31

How to Cite

Hussain, T., Arshed, N., & Kalim, R. (2020). An Appraisal of the Role of Islamic Banking Development and Economic Growth. Journal of Applied Economics and Business Studies, 4(4), 215-236. https://doi.org/10.34260/jaebs.4410