Transformation of Islamic Monetary Policy in A Dual Banking System: Analysis of Transmission Mechanisms, Financing Channels, And Responses of Islamic Banks to Changes in Interest Rates
DOI:
https://doi.org/10.59890/ijsas.v4i9.67Keywords:
Islamic Monetary Policy, Dual Banking System, Sharia Financing ChannelsAbstract
This study aims to analyze the transformation of Islamic monetary policy in a dual banking system, emphasizing the transmission mechanisms, financing channels, and responses of Islamic banks to interest rate changes. The study employed a qualitative approach through a systematic literature review of 11 scientific publications discussing Islamic monetary and banking policy in Indonesia, Malaysia, Pakistan, Turkey, and several other countries. Data were analyzed using content analysis, thematic analysis, and cross-country comparisons based on the objectives, methods, variables, findings, and policy implications of each study. The study's findings indicate that Islamic banks play a role in the transmission of monetary policy through changes in liquidity, fundraising, and financing distribution to the real sector. Although they do not use interest in their contracts, Islamic banks are still affected by interest rate changes through competitive returns, depositor behavior, opportunity costs, and the use of interest rates as a benchmark for margin determination. The extent of the response is influenced by the bank's size, capitalization, liquidity, asset structure, contract type, economic conditions, and the depth of the Islamic financial market. This study concludes that the transformation of Islamic monetary policy needs to be directed at strengthening Sharia-compliant monetary instruments, deepening the money and sukuk markets, developing more independent yield benchmarks, and increasing profit-sharing-based productive financing. This transformation is necessary to build an effective, stable transmission mechanism that is more connected to the real sector.
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