Econometric analysis of monetary policy and Islamic banking structure in financing Iranian industry with emphasis on Islamic financial instruments and the ARDL Model (2006–2023)

Ghasemipur, Omid; Noori Boroujerdy, Peyman; Norouzy, Alireza

doi:10.22034/jifb.2025.538567.1626

Econometric analysis of monetary policy and Islamic banking structure in financing Iranian industry with emphasis on Islamic financial instruments and the ARDL Model (2006–2023)

Document Type : Original Article

Authors

omid ghasemipur ¹

Peyman Noori Boroujerdy ²

Alireza Norouzy ²

¹ PhD student in Banking Management, Higher Institute of Banking Education of Iran, Tehran, Iran

² Visiting Professor, Higher Institute of Banking Education, Banking Management Department, Tehran, Iran

https://doi.org/10.22034/jifb.2025.538567.1626

Abstract

In this study, the challenges and limitations of the Iranian banking system in financing investment in the industrial sector during the years 2006-2013 were assessed with an analytical approach based on official data. Considering the principles of Islamic economics and the need to direct credit to productive activities, this issue is of particular importance. Considering the pivotal role of financing in sustainable growth, this study examined the bank-based structure of the Iranian financing system and estimated the effects of key factors, including banking facilities in the industrial sector, real interest rates on deposits as an opportunity cost of investment, inflation rates, and exchange rates, on industrial investment using the ARDL Model. The findings show that factors such as low capital adequacy ratios, chronic bank balance sheet imbalances, and overreliance on traditional instruments have weakened the capacity of the banking system to support industrial investment. This weakening is such that in the first eight months of 2023, only 35.5 percent of bank facilities were allocated to the industrial sector. Finally, based on the research findings, solutions such as developing and deepening Islamic financial instruments (including sukuk, mortgage-backed securities, and industrial project funds), reforming regulatory frameworks, and strengthening the regulatory role of the Central Bank of Iran have been proposed to align monetary policy with industrial development goals. It seems that these measures can pave the way for sustainable financing for the growth and transformation of the industrial sector of Iran.

Keywords

Production financing

industrial investment

ARDL Model

banking structure

Islamic financial instruments