Governance quality effect on Poverty Mitigation with Islamic Trade Financing

This paper is an analysis of the empirical effect of governance quality measured with Corruption perceptions index to the relationship between Trade financing by Islamic development bank (IsDB) and the poverty mitigation in the context of countries benefiting from financing by IsDB. Specifically, the study seeks to find out whether there is a statistically significant effect of governance quality measured with corruption perceptions index to the relationship between the Trade Financing dollar amounts by IsDB (TF) and the GNI Per Capita, PPP of 57 countries for the years 2002 to 2021. The research is a longitudinal, desk-top triangulation of correlation, regression, hypothesis-testing employing the linear dynamic panel data GMM model as an estimator of the empirical relationships between the key variables of the study. The study results show that there is a significant positive relationship between the TF dollar amounts from the IsDB and the GNI Per Capita, PPP and corruption negatively affects this relationship in these 57 countries. Therefore, countries that receive higher TF dollar amounts from the IsDB, generally have more GNI Per Capita, PPP (less poverty) than their counterparts but corruption reduces this positive relationship. It is, therefore, recommendable for countries to formulate policies that facilitate Islamically financed trade to mitigate poverty and control for good governance for economic progress. This paper develops a linkage between Karl Marx's theory of profit and interest with the objectives of the study as the Islamic financing model is measured as a poverty mitigation tool, while proving the motivating good governance effects poverty mitigation with Islamic financing.