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ABSTRACT
Many previous studies have focused on the impact of finance on economic growth. However, few studies have examined the impact of Islamic banking on economic growth. To fill this gap in literature, this paper investigates the potential effects of Islamic banking on economic growth. The paper has two main results. The first result is that previous studies show mixed support for the hypothesis that Islamic banking is a main channel of economic growth. The second result is that previous studies on the impact of Islamic banking on growth are single-country studies and their findings are difficult to generalize. In addition, the results of this paper point to several implications for policy. One of its implications for policy is that Islamic banking positively contributes to country 's macroeconomic stability.
Keywords: Islamic Banking Economic Growth; Islamic Banking Economic Development
1. INTRODUCTION
The idea of Interest-free banking was introduced in the late of 1940s by Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952)1. The first modern experiment with Islamic banking was established in a small town in Egypt, called Mit Ghamr, in 1963 by Dr. Ahmed El Najjar. The bank took the form of a saving-investment bank based on profit sharing and free interest, rather than commercial bank. (Ariff, 1988; Siddiqi, 2006).
In the 1970s, the Islamic banking movement re-emerged with the establishment of the Islamic Development Bank (IDB) in 1974 by the Organization of Islamic Countries QIC), which has been considered as the kick-start for the movement's second phase (Abdel-Haq, 1989). Many Islamic banks, both with letter and sprit, were established not only in Muslim countries, but have also gained footing in non-Muslim countries. Dubai Islamic Bank (1975), Faisal Islamic Bank of Egypt (1977), Faisal Islamic Bank of Sudan (1977), and Bahrain Islamic Bank (1979) were amongst the earliest commercial banks in the Arab countries. The Islamic Finance House in Luxembourg was established in 1978 to represent the first attempt at Islamic banking in Western world (Ariff, 1988), followed by the first Shariah-compliant insurance company (takaful) in 1983 in Luxembourg as well (Derbel et al., 2011). Many traditional Western banks have established Islamic windows / branches such the HSBC Bank, ANZ Grindlays, Standard Chartered Bank, Barclays, Citibank, ABN AMBRO, Klienwort Benson, Merrill Lynch,...