Abstract:
Purpose: This research assesses the impact of Islamic financing mechanisms like
Murabaha, Musharakah, Mudarabah, Ijarah, Salam, Istana, etc., as means of promoting
economic growth in Pakistan. The study examines the impact of these instruments on
the general economy and describes the reasons for the prevalence of debt-like models
over those based on equity.
Research Methodology: This study employed quantitative research to analyze panel
data on Islamic banks in Pakistan from 2015 to 2024. The second source of information
included data available through the State Bank of Pakistan and the Pakistan Bureau of
Statistics. An exploration of the relationship between financing tools and GDP growth
was conducted using descriptive statistics, correlation techniques, and regression
analysis.
Findings: The study addresses the gap between Islamic finance's theoretical ideals and
its practical implementation, highlighting the underrepresentation of equity-based
modes. Numbers point to Murabaha and Diminishing Musharakah being driving forces
in Islamic finance compared to participatory measures like Mudarabah and
Musharakah, which are underrepresented due to the risks and governance issues.
Despite having low direct links with GDP growth, Istisna and Diminishing
Musharakah are showing increasing economic significance.
Practical Implication: The findings imply that the encouraging of participatory forms
of financing is vital to regulators and banks seeking to attain balanced portfolios. It is
possible that strengthening supervisory and Shariah management systems will improve
the economic effectiveness of Islamic financial systems.
Originality/Value: This investigation fills a gap in the Islamic finance area by
analyzing empirically the macroeconomic impacts of different financing modes. It
provides tangible recommendations to
harmonize Islamic banking with its basis.
