Islamic finance and economic growth: The Malaysian experience Salina Kassim IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, 50728 Kuala Lumpur, Malaysia article info abstract Article history: Received 17 March 2015 Received in revised form 25 May 2015 Accepted 9 November 2015 Available online xxxx The increasing presence of Islamic banking and finance in Malaysia's financial sector and the country's exemplary role in the global Islamic finance industry has called for an evaluation of the contribution of Islamic finance to the real economic activity. In order to empirically investigate the impact of Islamic finance on performances of major macroeconomic indicators, this study applies the ARDL approach on quarterly data set for Malaysia covering the period from 1998 to 2013. The results suggest that Islamic finance has started to make important contributions to the real economy by effectively carrying out the financial intermediation role of pooling and channeling funds to the investment activities. In view of the important contributions of Islamic finance to the Malaysian economy, continuous efforts need to be under- taken to further expand the industry. This includes refinement of the legal and regulatory framework to enable healthier growth of the industry, thus further strengthens Malaysia's position as the leader in the Islamic finance industry at the global level. © 2016 Published by Elsevier Inc. JEL classification: G21 O16 C32 Keywords: Finance-growth nexus Islamic banking and finance Real economy Malaysia ARDL 1. Introduction Islamic finance was considered as a new phenomenon in the global financial scenario in the 1970s, starting with the establishment of the first Islamic commercial bank, namely, Dubai Islamic Bank in 1975. Since then, the Islamic finance industry continues to record remarkable progress. Today, total Islamic banking asset is es- timated to reach US$1.7 trillion, recording an annual growth of 17.6% in the period 2009 and 2013 (Ernst & Young, 2013). Amid the rapid growth of the industry globally, Malaysia has been at the forefront with total Islamic asset accounting for nearly 13% of the global Islamic finance industry and 8% of the global Islamic Global Finance Journal xxx (2016) xxx–xxx E-mail address: ksalina@iium.edu.my. GLOFIN-00338; No of Pages 11 http://dx.doi.org/10.1016/j.gfj.2015.11.007 1044-0283 © 2016 Published by Elsevier Inc. Contents lists available at ScienceDirect Global Finance Journal journal homepage: www.elsevier.com/locate/gfj Please cite this article as: Kassim, S., Islamic finance and economic growth: The Malaysian experience, Global Finance Journal (2016), http://dx.doi.org/10.1016/j.gfj.2015.11.007