The government of Malaysia has developed an Islamic Interbank Money Market (IIMM) since January 1994 with the objective to facilitate funding for the Islamic banking sector in the country. This platform also enables Islamic banks to obtain Shariah-compliant funds from other Islamic banks. This article examines the effects of interbank investment and financing risk on the financing decisions of Malaysia's Islamic bank between 1994 The financing decisions are used as financing measures to determine the effect of investing in the interbank market and financing risk indicators on financing. Research methodologies are the descriptive, correlation and dynamic panel analysis results are derived with the help of Limdep 9.0 software. The study found a negative relationship between the interbank investment variable with the financing decisions of Islamic banks. This reflects that an increase in interbank investment leads Islamic banks to reduce their level of financing. These findings prove the investment activities between Islamic banks had a "substitution effect" and decreased their capability of financing because of their tendency to maintain liquidity. Islamic banks are confident that they will generate higher profits in the coming financial year. The economic conditions of Malaysia do not influence Islamic banks' financing decisions, whereas Islamic banks in this study are more dependent on the balance sheet indicators.

This study aims to determine the effectiveness of Islamic Interbank Rate as the intermediary target by monetary policymakers in achieving economic goals. Via Islamic banking institutions as the mediator to channel the policy effect, the relevancy of this tool is identifiable. To attain this objective, a credit channel model was used by adapting macroeconomic variables and also bank specific variables. Data from 1997 until 2010 was regressed by using the Panel Data method with the application of interaction approach. The analysis finding shows that the IIR is capable in influencing the bank specific variables. accordingly, Islamic banks are the significant intermediaries in ensuring the effect of policy implementation provides stimulation to the achievement of the desired economic goals. Besides, the significant pro cyclical nature through the interaction with the GDP, indicates the effect of this policy tool in influencing bank behavior to offer financing for the economic sectors parallel to the current economy.

The economic recession that hit the world in 2007 to 2009 had a direct impact on the Islamic capital market in Malaysia. The data from the year 2007 to 2010 have shown that the Islamic stock market index has a higher volatility than conventional indexes, and this is what makes the return rate of Shariah index becomes unstable. The main aim of this study was to examine the volatility in the Islamic stock market. The instability of the market volatility returns may attract investors who prefer a risk stock market, because this market has the potential to provide a high return rate. On the other hand, the situation is to encourage Muslim investors that it is their duty to ignore speculation and invest, because rapid withdrawal from the markets will not be beneficial to many and may affect the goals to enhance Muslims' economy.