Abstract
The purpose of this study is to determine the impact of products and services of Islamic finance in Pakistan. This study has involved an empirical analysis of the environmental factors of growth and its impact on the growth of Islamic Financial Institutions. To investigate the factors of growth, a structural equation model develops that incorporates the main determinants of growth of banking assets and equity funds. The growth in the Islamic equity funds and banking assets has been identified as definite antecedents of growth in the Islamic financial system. The empirical investigation by the structural model using Pakistani dataset revealed that four out of ten hypotheses were significant including two direct paths as antecedents of annual growth. This study provides empirical support for the influence of some development factors to control the barriers of growth in the Islamic finance industry. This paper allows the identification of the major development factors of Islamic financial system that takes into account the importance of operational strategy and environment for the growth of Islamic equity funds and banking assets.
Highlights
The first, experimental, local Islamic bank was established in the late 1950s in a rural area of Pakistan which charged no interest on its lending [53]
The aim of this research is to investigate factors of growth in Islamic financial system in Pakistan and to determine how these factors are related to the development of Islamic financial products and services—i.e., the degree to which Islamic banking assets and Islamic equity funds act as an important factor in the Islamic financial industry growth
This study confirmed the mediating role of banking assets and Islamic equity finance (IEF) in strengthening the relationship between return and growth of Islamic finance (IF) system
Summary
The first, experimental, local Islamic bank was established in the late 1950s in a rural area of Pakistan which charged no interest on its lending [53]. Since the Islamic financial development has been slow and poorly developed as the result of a strong foothold in the conventional financial system. Some inadequate financial policies and decisions based on conventional interest system. Methodology for theory building in Islamic economics based on economic statements of the Quran, Hadith, and Sunnah lead to method that unfolds a mechanism to arrive at the real and undeniable meanings for development of the Islamic economic system [38]. Recent literature is drawing theoretical aspects of Islamic banking and finance for depositors, regulators, owners, managers, and borrower of the Islamic financial system. Theoretical aspect of this study is based on socioeconomic theory. Islamic economic theory and traditional economic theory are two different approaches. “The principle of contractual fairness could counterbalance the principle of permissibility with the objective of attaining social justice or equity between the parties” [8]
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