The Relationship Between Murabaha Financing And Key Macroeconomic Indicators

Abstract

This paper aims to evaluate the effectiveness of Murabaha in financing economies and demonstrate its importance along with the extent of its relationship with GDP, Inflation, Interest rate, and Economic openness, in an attempt to understand the broader impact of Islamic banking practices on economic performance. The majority of Islamic banks adopt Murabaha product as the basis for their financing. This is due to its high returns, low risk, ease of implementation, and its pre-determined known profits. The great focus on this financing product prompted us to research its importance within the economy of Saudi Arabia, Malaysia, and Indonesia. For this purpose, quarterly panel data from Q1-2014 to Q4-2021 has been collected. After confirming the stationarity, homogeneity of the coefficients in model, GMM-PVAR model and PVAR Granger Causality test have been applied. The results of which have revealed a presence of a non-causality relationship between Murabaha and both GDP and Economic Openness, and a one-way causal relationship between Murabaha and both Interest rate and inflation. According to these findings, it can be stated that Murabaha financing exerts only a minor effect on Macroeconomic indicators. These empirical findings could have some implications in changing the financing policies of Islamic banks.

Keywords

• Murabaha
• GDP
• Inflation
• Interest rate
• Economic Openness
• Panel Data

References

1. Abada, I. A. H., & Melhem, M. M. (2019). The economic importance of Islamic banking finance in Jordan: A case study of the Jordan Islamic Bank and the Islamic International Arab Bank. Studies: Sharia and Law Sciences, 46(3), 285-313. google scholar
2. Abduh, M. & Chowdhury, N. T. (2012). Does Islamic Banking Matter for Economic Growth in Bangladesh? Journal of Islamic Economics, Banking and Finance, 8(3), 104-113. google scholar
3. Abduh, M. ve Omar, M. A. (2012). Islamic Banking and Economic Growth: The Indonesian Experience, International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 35-47. google scholar
4. Abuafifa, H., (2015). Murabaha to purchase order and its impact on monetary inflation. University of Sharjah Journal of Sharia and Legal Sciences, Volume 13, Issue 2 google scholar
5. Adadi, T., (2015). Islamic Letter of Credit as a Mechanism for Financing Foreign Trade. Algeria. International Forum entitled: Challenges of Financing Investment in the Business Environment - An Islamic Vision. Faculty of Economic, Commercial and Management Sciences, University of Tebessa. google scholar
6. Adebola, S.S., Yusoff, W.S.W., & Dahalan, J. (2011). The impact of macroeconomic variables on Islamic banks financing in Malaysia. Research Journal of Finance and Accounting, 2(4), 22-33. google scholar
7. Ahmad, N., Yazis, M., & Oudat, M.S. (2015). Analysis long-run and short-run relationships between macroeconomic variables and murabaha to the purchase-order: Evidence from Jordanian Islamic bank. International Journal of Economics and Finance, 7(2), 168-177. google scholar
8. Akkaş, E. (2017). An overview of Islamic economics and finance in the GCC countries. Istanbul. İKAM Country Reports. Report No: 3. google scholar

9. Al-Aqoul, Muhammad Ali., (1993). The role of credit facilities granted by the Islamic Bank in the Jordanian economy. Irbid, Amman. Master thesis in Islamic economics. Yarmouk University. College of Sharia and Islamic Studies. google scholar
10. Alawneh, A. M., Al-Fawwaz, T. M., & Shawaqfeh, G. N. (2019). The Impact of Islamic Finance on Some Macro Economic Variables (A case study of Jordan Islamic Bank). Interdisciplinary Journal of Contemporary Research in Business (IJCRB). google scholar
11. Almsafir, M. K., & Alsmadi, A. A. (2014). Murabahah versus interest rate, the equilibrium relationship with macroeconomic variables in Jordanian economy: An ARDL approach. Procedia Social and Behavioral Sciences, 29, 349-357. google scholar
12. Ayuniyyah, Q., Beik, I. S., & Arsyianti, L. D. (2013). Dynamic analysis of Islamic bank and monetary instrument toward real output and inflation in Indonesia. Processing of Sharia Economics Conference – Hannover 9 Feburary. google scholar
13. Bakhita, H. (2017). Impact of Islamic modes of finance on economic growth through financial stability. Journal of Business and Financial Affairs, 6(249), 2167-0234. google scholar
14. Boukhemt, A. (2018), The role of Islamic banks in financing foreign trade - the Islamic Development Bank as a model. El Oued, Algeria. Master Thesis in Islamic sciences. Shahid Hama Lakhdar University. Institute of Islamic Sciences. google scholar
15. Breitung, J. (2005). A Parametric Approach to the Estimation of Cointegration Vectors in Panel Data. Econometric Reviews, 151–174. google scholar
16. Central Bank of Indonesia “[https://www.ojk.go.id/en/kanal/perbankan/data-dan-statistik/statistik-perbankan-syariah/Pages/Sharia-Banking-Statistic---December-2021.aspx](https://www.ojk.go.id/en/kanal/perbankan/data-dan-statistik/statistik-perbankan-syariah/Pages/Sharia-Banking-Statistic---December-2021.aspx)” (access 12/02/2024) google scholar
17. Central Bank of Malaysia “[https://www.bnm.gov.my/rates-statistics](https://www.bnm.gov.my/rates-statistics)” (Access 14/02/2024) google scholar
18. Central Bank of Saudi Arabia “ [https://www.sama.gov.sa/en-us/EconomicReports/pages/database.aspx](https://www.sama.gov.sa/en-us/EconomicReports/pages/database.aspx)” ( Access 15/02/2024) google scholar
19. International Monetary Fund “ [https://data.imf.org/?sk=388dfa60-1d26-4ade-b505-a05a558d9a42](https://data.imf.org/?sk=388dfa60-1d26-4ade-b505-a05a558d9a42)” (Access 19/01/2023) google scholar
20. Islamic Financial Services Board “[https://www.ifsb.org/data-metadata/](https://www.ifsb.org/data-metadata/)” (Access 18/01/2023) google scholar
21. Cüre, E. (2017). Individual Murabaha Transactions Applied in Islamic Banking: Turkey Example. Istanbul Türkiye.Istanbul Sabahattin Zaim University. google scholar
22. ERGÜN, T., (2022). The relationship between Murabaha and macroeconomic dynamics. Marmara University Journal of Economics and Administrative Sciences • Volume: 44 • Issue: 1 • , ISSN: 2587-72, pp/pp. 119-136 DOI: 10.14780/muiibd.1135535 google scholar
23. Hasan, H. A. E. (2019). Evaluating the Murabaha financing experience in Sudan. Nile Bank case study Between (2010-2017). Sudan University of Science and Technology. google scholar
24. Khotijah, S. A., & Iswanaji, C. (2020). Analysis of the effect of murabaha finance in sharia banks on the economic growth of agricultural sector. Jurnal Ekonomi dan Keuangan Syariah, 4(2), 246-259. google scholar
25. Korkut C., Özgür Ö., Is there a link between profit share rate of participation banks and interest rate?: The case of Turkey. Journal of Economic Cooperation and Development , cilt.38, sa.2, ss.135-158, 2017 google scholar
26. Lamesh, A. (2012). The role of financial engineering in developing the Islamic banking industry. Stif, Algeria. Master Thesis, Ferhat Abbas University. google scholar
27. Mahabadi S, Kiaee H. (2016). Determinants of Inflation in Selected Countries. J. Mon. Ec. 2015; 10(2) :113-148google scholar
28. Mawada, B. (2018). Murabaha and its impact on financing foreign trade in Sudan in the period 2007-2016, an applied study on the banking sector in Sudan. Thesis for obtaining Master’s degree in applied economics. College of Graduate Studies. Sudan University of Science and Technology. google scholar
29. Shahzad, A., Ahmed, T., & Rehman, K. U. (2012). Islamic financial system: A system to defeat inflation. Kuwait Chapter of the Arabian Journal of Business and Management Review, 2(4), 69. google scholar
30. Syahputra, D., & Ningsih, S. (2020). The effect of Murabaha financing and sharia bank Musharaka financing to gross domestic product. International Conference Communication and Social Sciences, 1(1), 148-158. google scholar
31. Tabash, M. & Raj S. Dhankar, (2014). Islamic Banking and Economic Growth — A cointegration Approach. Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 61-90, September. google scholar
32. Yerdelen Tatoğlu, F. (2024). Panel Zaman Serileri Analizi: Stata Uygulamalı, Beta Yayıncılık, İstanbul.google scholar
33. Zahid, S., & Basit, AB. (2018). Impact of Macroeconomic factors on the growth of Islamic banking: A case of Pakistan. Journal of Finance&Economics Research, 3(2), 37-50. google scholar
34. Zandi, G. Noraini, M. & Shahabi, S. (2012). Some issues on Murabaha practices in Iran and Malaysian Islamic banks. African Journal of Business Management, 6(24): 7066. google scholar