Islamic Modes of Finance and Economic Growth: A Mediating Role of Financial Stability in Case of Islamic Countries

Abstract

The study aims to find out the nexus between the efficiency of Islamic banks and economic development. It attempts to address whether Islamic banks are a perquisite for economic growth or a consequence of their financial stability. The research follows a quantitative approach, using cross-sectional data background analysis. Data is collected from six banks in six Islamiccountriesover the 2016-2020 period. Pearson regression is used to calculate the causal relationship between GDP and success in Islamic finance modes, Z ranking. Regression tests show a significant relationship between finance modes and GDP R=0.89, the negative causal relationship between Z score and GDP, negative relationship between Ijara, Murabah modes and GDP. The test also shows significant negative relationships between finance modes except Mudaraba and Z score R=0.93. There's an insignificant partnership between Zscore
and Muraba.