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The main purpose of this study is to
investigate the relationship between Islamic financing and economic growth of
Malaysia and also other variables between them. The current study relies mainly
on secondary data.

 

From the past researchers Zin (2011), Lo
(2014) and Kassim (2016) stated that Islamic finance industry has been growing
rapidly over the last three decades in the current international financial.
According to PricewaterhouseCoopers (2008), Malaysian Islamic finance system
has a competitive advantage as compared to other Islamic financial centres
because of the strength of its dual financial system. Many economists such as
Mohammed Ali Al-Oqool1, Reem Okab1 & Mohammed Bashayreh1 (2014), Mosab I.
Tabash1, Raj S. Dhankar2 (2014), Mosab I. Tabash (2014), M. Saleh Sarwer, Prof.
Dr. Muhammad Ramzan & Waqar Ahmad (2013) 
have reported the works in Islamic finance and its relation to economic
growth in Jordan, United Arab Emirates (UAE), Pakistan and Middle East. For
Malaysia, the studies of relationship between banking institution and economy
have been studied in detail (Fadzlan, 2017). There are many studies on the
Islamic banking-growth relationship since in the past. However, many studies
have focused on conventional banking only, but not Islamic banking. The
research done on Islamic financing and their relationship towards the economic
growth in Malaysia is little, which was done by Hakim Bm & Md Akther Uddin
(2016) and Zaid Mohd Zin & Saurdi Ishak & Razak Abdul Kadir &
Syahiran Abdul Latif (2011).

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Empirical research in regard on the
relation between Islamic financing and economic growth in Malaysia is very
limited. Thus, there is lacking and insufficient information about the relation
between Islamic financing and economic growth in Malaysia. Abdul Adeel (2017)
has studied the relation between Islamic financing which include ijara,
mudaraba, murabaha and musharaka towards the economic growth in Pakistan. Their
results showed that Islamic financing is positively correlated with economic
growth in Pakistan. According to BNM Annual Report (2016), most of the Islamic
financial products concept includes Ijarah (leasing), Mudaraba
(profit-sharing), Murabaha (cost plus), Musharaka (joint venture) and others.
Bakhita (2017) has examined that there is positive relationship between Islamic
financing and GDP by measuring these four main Islamic modes of finance on
economic growth through financial stability. The problem regarding the
relationship between Islamic financing and economic growth has received much
attention from economists and policy makers all around the world. Some of them
argue that there is a positive relationship, while some argue that there is a
negative relationship. Therefore, the purpose of this study is to thoroughly
investigate this important relationship between Islamic financing and economic
growth of Malaysia.

 

However, based on the ten Islamic banks
that we have chosen in Malaysia, there is only one Islamic modes of finance
which is Murabaha that was provided at same period of time, which is 2012 till
2016. Thus, contribution of this study will be focus on Murabaha due to the
limited research on Islamic financing. As we knew the research done on the
relation between Islamic financing and economic growth in Malaysia is very
limited, so this study investigates how Islamic financing contributes towards the
economic growth of Malaysia. The purpose of the present study is to investigate
the relation between Islamic financing and economic growth of Malaysia. In
addition, in this studies will do the research about what other factors that
influence the economic growth of Malaysia. It is important to understand the
relationship between Islamic financing and economic growth in Malaysia in order
to understand the other factors that influence the economic growth of Malaysia.

 

As a conclusion, this study tries to fill
the knowledge gap on two aspects. First, to eliminate the misconceptions on the
relationship between Islamic financing and economy growth. This problem is
eliminated in this study by just focusing on the economy growth of Malaysia.
Second, the inclusion and exclusion of variables in FDI and inflation towards
the economic growth of Malaysia.

 

According to Mishkin (2001), inflation
is defined as a rise in the general level of prices of goods and services in an
economy over a period of time. Inflation can have three possible effects on
economic growth: positive, negative or no effect. High levels of inflation
would have a negative effect on economic growth, but certain inflation
thresholds could have a positive effect on economic growth. Burdekin &
Weidenmier (2002) argued that the relationship between these two variables also
lays on the reliability of the model used.

 

Mallik and Chowdhury (2001) have studied
the relationship between inflation and economic growth in four South Asian
countries namely Bangladesh, India, Pakistan and Sri Lanka. Their empirical
results showed that the two variables are a positive relationship between them
for all four countries. 

 

The study mainly based on secondary
data. According to BNM record, there are 16 Islamic banks in Malaysia (BNM
2017). However, due to limited data, there were only 10 Islamic banks chosen to
further conduct in this research. Data on Islamic financing were collected from
the annual reports of ten chosen Islamic banks in Malaysia. These ten Islamic
banks have been selected is because these banks offered the Islamic financing
called Murabaha. Due to the data ability, we use from 2012 to 2016 time series
to examine the relation between Murabaha and GDP in Malaysia. Before the year
of 2012, there is less bank using of Murabaha as a mode of financing. We use
Murabaha as a represent of independent variables and GDP representing of
dependent variable. The all sources data of GDP, FDI and inflation were
collected from the database published by Department of Statistics Malaysia and
The World Bank. For consistent with Murabaha data we also made use of years
2012 to 2016 GDP, FDI and inflation data .With the help of secondary data, we
are able to figure out what are the relation between Murabaha and GDP in
Malaysia.

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