The Impact of Islamic Banking on Economic Growth via Mediating Role of Access to Financial Inclusion in Pakistan

Abstract

This research examines whether financial inclusive acts as a mediator between Islamic banking investments and economic growth in Pakistan from 2010 to 2021. Applying annual time series data, the study explores how the flows in investments in Islamic banking (IBINV) affect the Pakistani GDP controlling the role of Access to financial services (Financial inclusion). Data for investment is obtained from the website of State Bank of Pakistan for value added from Islamic banking and World Bank indicators for financial inclusion. This study uses Islamic banking investments as the presumption that it affects GDP while using financial inclusion as the mediator in the econometric model. The results show that there is a positive and significant effect of Islamic banking investment on economic growth. Consequently, this study reveals that, access to financial inclusion significantly enhances the impact of Islamic banking investment for economic growth. Hence, the paper’s findings favours Islamic banks’ position for enhancing access to banking services, and thereby access financial inclusion as a stabilizer of Pakistan’s economy that offers an opportunity to lessen economic disparities by avoiding the exploitation implied by interest charges. The study provides policy implications for increasing the Islamic banking industry in Pakistan including.

Keywords: Islamic Banking Investments, Access to Financial Inclusion, Economic Growth, Pakistan.