Is islamic bank financing related to interest rate ? Malaysian evidence based on ARDL approach

Ramic, Esma and Masih, Mansur (2017): Is islamic bank financing related to interest rate ? Malaysian evidence based on ARDL approach.

Abstract

Over time the current world financial markets have become more closely correlated and dependent due to increased market integration. Islamic banking and finance had a rapid growth during the last two decades. This study applies Autoregressive Distributed Lag (ARDL) method to assess the relationship between the total financing of Malaysian Islamic Banks and interest rate, and it results that total financing is relatively a bit insensitive to changes in interest rate. The variance decompositions of two relevant variables such as, interest rate (DTB) and total financing (DFA) tend to indicate that they are fairly explained by themselves because the contributions of their own shocks to explaining their variances are 78% and 73% respectively. It shows that Islamic banks are relatively a bit resistant to interest rate as compared to the findings of some other researchers and also, debt-based financing by the conventional banks. Our study finds that the Islamic banking and finance can achieve the relative independence from the conventional banks and interest rate through Islamic financing and practices. This is rather a unique contribution of the paper with strong policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic banks, total financing, interest rate, ARDL, Malaysia
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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