Islamic Banking Institutions and their Role in Economic Development of Jordan

Abstract

Purpose: This study aimed to demonstrate the importance of economic financing at Islamic banks in the Hashemite Kingdom of Jordan. Theoretical framework: This study came to answer the following main questions: What is Islamic banking finance, its meaning, and its characteristics? What is the reality of Islamic banking finance in Jordan? What is the impact of Islamic banking finance in Jordan on increasing investment and saving? What is the impact of Islamic banking finance in Jordan in reducing inflation and unemployment? What is the impact of Islamic banking finance in Jordan on the gross domestic product? What is the main difference between Islamic banking and the conventional banking system? Design/methodology/approach: The study measures several areas in terms of income, unemployment, inflation, investment, as well as gross domestic product during the period from 2015-2020, where the regression approach was adopted in order to measure the effects. Findings: The study showed no statistically significant effect of financing in Jordanian Islamic banks on the gross domestic product and inflation while it showed a statistical effect of financing in Islamic banks on the public commercial sectors, housing, and construction. The study also revealed that largest part of financing in Jordanian Islamic banks is directed toward construction and housing sector, followed by the public services sector to achieve the desired economic goals of Islamic banking finance. Research, Practical & Social implications: This study was limited to explaining the economic importance of Islamic banking finance in Jordan, and to some economic variables; such as gross domestic product, inflation, and unemployment. Originality/value: Study stems from the importance of financing provided by banks, where commercial or Islamic financing in banks considers one of the most important services provided to society, and accordingly this study hopes to present a practical vision of financing importance in Jordanian Islamic banks on economic development, and hopes to provide recommendations for Jordanian Islamic Banks.