Financing growth within the constraints of monetary policy and the economic environment: a case study of the Malaysian Islamic banks

This article analyses the effect of bank specifications, changes in monetary policy and economic environment in Malaysia towards Islamic banking behaviour in offering financing. In theory, any change that occurred as indicated above will lead financial authorities, especially banking management, to make modifications on financing offered by referring to profit maximization objective apart from minimizing default. This study employs panel data estimation for the period 1994-2010 of 17 Malaysian Islamic banks. It is found in this study that the pattern and behaviour of Islamic banking in offering financing is influenced by factors such as level of last financing, exposure to risk, as well as size and structure of the capitalization level. With regards to monetary policy, finacing behaviour of Islamic banking is influenced by investment in Islamic Interbank Money Market (IIMM) and Malaysian government securities. As for economic environment, the study found that there is no significant relationship between this factor and the behaviour of financing of Malaysian Islamic banks