Abstract
The poor growth of musharakah-based finance in the context of Pakistani Islamic banking is the main motivation behind this study. The literature identifies several factors for this poor growth. Among these, the direct influence of internal and external factors on the application of musharakah has gained crucial theoretical and empirical support. This study aims to identify the influence of internal control systems (internal factor) via the moderating role of government policies (external factor) on the growth of musharakah-based finance in Pakistani Islamic banking. To begin with, this study uses exploratory factor analysis (EFA) to identify the underlying structure of items, and PLS-SEM to identify possible effects on data collected from 92 respondents. Results indicate the existence of partial moderation at a 10% level of significance (t-value=1.876, p-value=0.061). Since this paper tests the moderating variable, develops a theoretical framework, and uses Smart PLS 3 as methodological contributions improving upon existing literature. The study concludes by identifying future research opportunities and considering other variables with mediating effects.