THE CONTRIBUTION OF ISLAMIC FINANCING TOWARDS THE ECONOMIC GROWTH: AN ANALYSIS OF HALAL PRODUCTS IN MALAYSIA

Abstract

Capital is essential for businesses to sustain and grow. Sources of capital can be in many forms; it includes own saving, borrowed from a relative, seeking the financial assistance from the financial market and selling a share to the investor through the capital market. Thus, the purpose of this study is to examine the contribution of Islamic financing towards the production of halal products, which used the example of the livestock industry in Malaysia. Data on Islamic funding are obtained from 2009 until 2015 of the 16 Islamic commercial banks and the Agro bank of Malaysia as the representative for the development of financial institutions. The analysis of this study used the autoregressive distributed lag (ARDL) bounds testing approach for the cointegration test between Islamic financing and the halal production. We observed that Islamic financing sources have a significantly positive influence on the growth of halal livestock production in the long-run. This indicates that sources of financing could help with the growth of the halal industry, especially in the livestock sector for Malaysia's case. The result of the short-run was contrary to the long term. It shows an insignificant relationship between these two industries.