The relationship between the development of Islamic banking and income distribution

With the increase in the development and depth of Islamic banks, which operate on the basis of interest-free as an alternative to the traditional banking system in economies, they have started to get more shares from the financial markets over time. Although this situation reveals the need to examine the effect of the development of Islamic banks operating on the interest-free basis on income distribution, such studies are scarcely any in the literature. In the first part of this study, the historical development of banking and Islamic banking and the main factors in the emergence of Islamic banking are mentioned. In the second part, the concepts of income and income distribution are explained and the methods used in income inequality are touched upon. The third section is the section where the literature study and econometric analysis are made. In this section, the impact of Islamic banking development on income distribution is analyzed in Malaysia for the period 2001-2019 with the ARDL boundary test method. According to the econometric findings of the study, while per capita income reduces income inequality in the early stages of economic development, it increases income inequality in the later stages of economic development. Considering the income distribution relationship of Islamic banking development, which is the main motivation for this study, a 1% increase in the volume of credit given to the private sector by Islamic banks on average in the period examined in terms of Malaysia reduces income inequality by 0.036% on average. It has been determined that it makes a positive contribution to the provision of justice in the distribution of As a result of the findings obtained from the analyzes in the study, some policy recommendations are presented to both the Islamic banking sector and public authorities. In this respect, it is recommended to introduce, develop and deepen the Islamic banking system, which makes a positive contribution to ensuring the justice in income distribution. In addition, it is stated that if public authorities take an active role in the development and deepening of Islamic banking, Islamic finance can develop rapidly, as can be seen in the example of Malaysia, and this situation can play an important role in reducing income inequality.