Skip to content
Research Article Open access CC BY 4.0

Banking and Economic Growth: Comparison between Islamic and Conventional Banking in Malaysia

Nor Asmat Ismail, Muhammad Faiz Kamarulzaman

South Asian Journal of Social Studies and Economics · pp. 1–14 · Published 23 Jul 2021

10.9734/sajsse/2021/v12i130294

Abstract

This study investigates the contribution of conventional banking and Islamic banking to economic growth in Malaysia. Return on assets, return on equity representing the profitability, total deposit, representing bank development, and several indicators such as total government expenditure, trade openness, and gross fixed capital formation were independent variables. In contrast, the dependent variable was GDP per capita. The study utilised secondary data collected from the Fitch Connect database and Datastream database. This study used a sample of 10 Islamic banking and 10 Conventional banking. The study found that the Islamic banking system variable can influence Malaysia's economic growth.  ROA and Ltdep are found significant and have positive effect to economic growth, but ROE  has adverse effects. On the other hand, the results show that ROA in Conventional bank does not have a relationship with economic growth. However, other banking indicators such as ROE and total deposit are significant to economic growth. Based on the ROE results, ROE Islamic bank contributes more to economic growth than Conventional bank because the percentage that contributes to the decreases of economic growth for Islamic banks is lesser than Conventional bank. The results also showed that Islamic banking provides an efficient channel for productive resources and monitors the use of the funds by the participation of business ventures, leading to bank profitability and then economic growth. This study also stressed on total deposit indicator as a proxy to bank development. This study found that total deposit for the both banking system is significant to economic growth. However, the contribution of banking development in conventional banking is much better than by Islamic banking. However, the gap of differences is too small, which shows that Islamic deposits can cope with conventional deposits. 

Conventional banking economic growth Islamic banking

References (24)

  1. 1 On the mechanics of economic development [DOI]
  2. 2 The Theory of Economic Development [DOI]
  3. 3 Money and Capital in Economic Development. [DOI]
  4. 4 Financial Structure and Development. [DOI]
  5. 5 Financial Development and Economic Growth in Underdeveloped Countries [DOI]
  6. 6 Does financial development cause economic growth? Time-series evidence from 16 countries [DOI]
  7. 7 Financial development and economic growth: evidence from panel unit root and cointegration tests [DOI]
  8. 8 Does one size fit all?: a reexamination of the finance and growth relationship [DOI]
  9. 9 Using accounting ratios to distinguish between Islamic and conventional banks in the GCC region [DOI]
  10. 10 Islamic banking and economic growth: the Indonesian experience [DOI]
  11. 11 Islamic finance and economic growth: The Malaysian experience [DOI]
  12. 12 Islamic versus conventional banks in the GCC countries: A comparative study using classification techniques [DOI]
  13. 13 Islamic Banking and Economic Growth: Empirical Evidence from Malaysia
  14. 14 Islamic banking and economic growth in GCC & East Asia countries [DOI]
  15. 15 Islamic banking presence and economic growth in Southeast Asia [DOI]
  16. 16 Does Islamic bank financing contribute to economic growth? The Malaysian case [DOI]
  17. 17 Banks and economic growth in developing countries: What about Islamic banks? [DOI]
  18. 18 Principles of Islamic Banking: Debt versus Equity Financing [DOI]
  19. 19 Does Islamic banking matter for economic growth inBangladesh
  20. 20 Financial development, Islamic banking and economic growth evidence from MENA region
  21. 21 Islamic Banking and Economic Growth: Evidence From Asia
  22. 22 The finance and growth nexus
  23. 23 Endogenous Technological Change [DOI]
  24. 24 Financial Development and Economic Growth: Views and Agenda

Cited by 6

Financial Performance Uncovered: Asian Commercial, Savings, and Islamic Banks in Focus

Wil Martens · 2024

An exploratory comparative analysis of fiscal discipline in Islamic economics: Integrating ethical governance with sustainable financial practices

Yuli Andriansyah, Fajar Fandi Atmaja, Rima Isfah Lana · Journal of Islamic Economics Lariba · 2025

Showing 2 of 6 known citations — external sources report more than can currently be individually listed.

Related research

Article metrics

Real usage data collected on this platform.

31

Page views

0

PDF downloads

6

Outbound clicks

6

Citations

Views over time

Views by country

Approximate, from request IP at view time — not citizenship or institution. Countries with fewer than 5 views are grouped as "Other".

Traffic sources

Referring site, by host.

Views and downloads exclude known bots/crawlers. Citations combines this platform's own DOI-resolved index with each external source's own reported total — see Cited by above for individually listed citing works. Last refreshed 0 seconds ago.