Contribution of Islamic Banking to Growth: Empirical Analysis From a Different Perspective

Islamic finance has been practiced in different forms and its practice in modern financial markets became recognized in 1980s and begun to represent a meaningful share of global financial activity by the beginning of 21st century. In this respect, possible effects of Islamic finance on economic growth have been investigated empirically in especially Muslim economies. However, share of Islamic banking and financial institutions in the financial system is still small. For this reason, measuring contribution of Islamic banks on economic growth is still hard. In this study, we try to measure effects of Islamic banks on the growth of Turkish economy via credit types, business and commercial loans given by Islamic banks. By doing so, we aim to better understand effect of Islamic banks on real economy. In the second step, we try to measure possible effects according to type of ownership of banks and decompose participation banks into two groups, private and public to see if there is a difference between participation banks due to its ownership. Results show that Islamic banks credit industrial sector in expanding periods. But volume of credit to industrial sector contracts in contraction periods. That means Islamic banks behave parallel to conjuncture of the Turkish economy.