Abstract
Islamic banks (IBs) have a significant role in the growth of gross domestic product of the developing countries. The Islamic participatory schemes integrate the assets of lenders and borrowers. They allow enable IBs to lend on a longer term basis to create projects with higher risk-return profiles and, thus, to support economic growth. Our investigation examines the contribution of Islamic finance in economic growth. Using a panel data-set, we compare between IBs and conventional banks in their adding to economic growth. We studied a sample of 120 banks between 2005 and 2012. By means of three ordinary least-square regressions, our empirical investigation reveals that the development of non-usurious banks supports economic growth. Moreover, the cooperation between the two financing modes improves economic growth. The integration of this new funding never neglected the role of the conventional method of financing. The practice of IBs is also away from their theoretical mode in terms of participation results.
Highlights
During the last two decades, Islamic banking has seen a rapid growth
We found that the indicator profitability (ROA and return on equity (ROE)), the control variables (LT_ASS and income diversity (ID)), the interest variables (DIR and gross fixed capital formation (GFCF)) have a positive and significant impact excepting the variable Return on assets (ROA) which has a significant but negative effect
These results indicate that bank profitability measured by the ROE, the bank development considered by total investments (T-INVM), total incomes (T-INCOM), NBR_BRAN, NBR_EMPL, the control variables precised by ID and interest variables identified by GFCF, have a statistically significant impact on economic growth
Summary
During the last two decades, Islamic banking has seen a rapid growth. The liberalization of financial regulations, financial globalization, changes in technology, product innovation, the birth of several new Islamic markets, and the most notable of them is the financial crises stimulate the spread of the IF (Rosman, Wahab, & Zainol, 2014). Gheeraert (2014) found that the development of a new Shariah-compliant banking industry, which does not crowd out the conventional banking system in the Muslim countries, leads to a higher banking sector development, as measured by the amount of private credit or bank deposits scaled to GDP. Some developing economies, such as Egypt, Jordan, Kuwait, Malaysia, Saudi Arabia ...
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