Bangladesh Bank Training Academy Journal

Abstract

In tandem with global rapid expansion of Islamic finance, Bangladesh has experienced phenomenal growth in Islamic banking in the backdrop of strong public demand and support for the system. The Islamic banks play key role in promoting economic growth in Bangladesh by mobilizing deposits, collecting foreign remittances and financing major economic sectors such as agriculture, industries and trade. The current paper seeks to find out the magnitude of contribution of Islamic bank financing on economic growth in Bangladesh during 1991-2020. To this end, the paper would apply Vector Error Correction Model (VECM) based on secondary time series data. It is found that Islamic finance including conventional bank finance, FDI and government expenditure affect GDP positively in the long run. However, GDP is negatively related to the growth of Islamic bank financing in the short run.