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Financial inclusion and economic well-being: Evidence from Islamic Pawnbroking (Ar-Rahn) in Malaysia

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  • Abdul Razak, Azila
  • Asutay, Mehmet

Abstract

This study examines the impact of financial inclusion by means of Islamic pawnbroking or ar-rahn financing facility on improving the economic wellbeing of the clients in Malaysia. The data set, consisting of primary data assembled through questionnaire surveys conducted in 2010 and 2016, which were analysed by employing structural equation modelling (SEM). The findings demonstrate that financial inclusion through patronising ar-rahn significantly improves the wellbeing of the clients. The usage of ar-rahn financing for production purpose related economic activity is significant in enhancing individual wellbeing resulting in micro balancing and improving the financial and socio-economic development. This study concludes that ar-rahn helps to overcome voluntary financial exclusion due to Shari’ah compliance in the face of the social failure of Islamic banking, which then contributes to the clients' lives in their everydayness who may have non-liquid small assets kept for security purpose. As a policy recommendation, this study suggests that policymakers and ar-rahn institutions should play a proactive role in improving the outreach of ar-rahn services and providing the necessary regulative environment, as they also contribute to women’s empowerment.

Suggested Citation

  • Abdul Razak, Azila & Asutay, Mehmet, 2022. "Financial inclusion and economic well-being: Evidence from Islamic Pawnbroking (Ar-Rahn) in Malaysia," Research in International Business and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001781
    DOI: 10.1016/j.ribaf.2021.101557
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    More about this item

    Keywords

    Islamic pawnbroking (ar-rahn); Financial inclusion; Economic wellbeing; Societal wellbeing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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