Abstract
Growth has a strong association with financial development. Both micro and macro level projects significantly benefit from the access to finance that helps to reduce their cost. Islamic financial development incorporates several benefits,such as the transformation of the economy towards Shari’ah compliance, a higher degree of risk-sharing, and the integration of returns with the risk/performance associated with the investment venture,thus ultimately leading to social prosperity. This study envisages to explore the contribution of the different types of Islamic financing,which Islamic banks currently utilize in their capital structure, in generating economic growth. This assessment may help to empirically identify the type of financing which has been successful in promoting growth. This is because each and every Islamic finance product has a particular role to play in promoting growth. Gross Domestic Product (GDP) was taken as the dependent variable. Control variables based on the Solow model included Labor Resource (L) and Physical Capital (K),while the base variable comprised the financing modes. Quarterly data was collected for 9 countries for the time period 2014Q1-2017Q4. The results indicated that other than Istisna financing all other types of financing have a positive effect on economic growth, whereas Salam financing has the highest potential of growth.Previous studies lacked in providing a country wise comparison of the growth related effect of the country-level Islamic capital structure,while considering finance as an input of economic growth within a panel data setup. This study found growth based weights of the popular Islamic finance options which policymakers can use to find a particular type of financing that needs to be promoted in order to boost economic growth.
Noman Arshed, Sadia Yasmin, Muhammad Gulzar. (2020) Islamic Financing Portfolio and its Comparative Growth Potential, Islamic Banking and Finance Review, Volume-07, Issue-1.
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