Islamic banks and effects on economy: The case of Yemen

It is possible to say that the banking system is contributing to to the country's economic growth factor as well as its growth. The banking system is the core of economic activities, not only for an important role in mobilizing domestic savings and a foreign investment, but also for representing the most important contact with the outside of the world. Therefore, if the country's banking system is more developed it will be more positive in the economy of that country. In recent years, the success of Islamic banking has increased because of importance. Especially, in 2008 after the global financial crisis, it was noted that Islamic banks were less affected by the negative developments of observed in the global markets than conventional banking operations. In addition, it can be said that the Islamic banking system has an important role in the global banking system. Despite the fact that Yemen's economy is small compared of different llinstitutions operating within , Islamic banks in Yemen are not far from the global development of Islamic banks. Although, Yemen Islamic banking has emerged recently, it has achieved 32% of total assets of the banking system and has grown rapidly. In this study, using the quarterly data between 2006:1 - 2015:4, we examined the effects of asset size. The size of deposits and loans of Islamic banks in Yemen are in the growth of the Yemeni economy. For this purpose, the researcher used Lee-Strazicich (2004) LM structural root unit test, (Hatemi 2008) that joints integration test and Hatemi (2012) also asymmetric causality test. As a result, it has been determined that there is a long-term relationship between the size of assets of banks and the volume of loans in Islamic banks and GDP of Yemen. Keywords: İslamic banks , Participation banks , Interest-Free banks, Islamic Finance, İslami Finans, Private Financial Institutions.