PERFORMANCE EVALUATION AND IMPACT OF ISLAMIC BANKING ON ECONOMIC DEVELOPMENT OF PAKISTAN

Abstract

This research investigates the performance of Islamic banking in Pakistan, focusing on its contribution to economic growth and stability. Utilizing a comprehensive dataset spanning from 2005 to 2020, the study employs Ordinary Least Square (OLS) model to analyze the relationships between deposits, investment, financing, and economic growth. The findings reveal significant positive impacts of deposits on the economy. Moreover, the study underscores the positive role of Islamic banking in fostering financial inclusion and its resilience during economic downturns, as evidenced by its performance during the global financial crises. The research contributes valuable insights for policymakers, financial experts, and regulators in evaluating the economic dynamics of the nation. As Islamic banking continues to grow in popularity, understanding its performance becomes crucial. Recommendations include refining performance measurement tools, fostering innovation in financial products, and addressing regulatory gaps to sustain the sector's growth. Policymakers are urged to incentivize financial inclusion, support Islamic microfinance organizations, and maintain a supportive regulatory environment. With ongoing efforts and collaboration, the study envisions a robust and sustainable Islamic banking sector that significantly contributes to Pakistan's economic prosperity.