THE COMPARATIVE ANALYSIS OF ISLAMIC MODE OF FINANCE USED IN ISLAMIC BANKING OF PAKISTAN AND ITS IMPACT ON ECONOMIC GROWTH

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.