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Can Islamic banking increase financial inclusion?

In: Handbook of Empirical Research on Islam and Economic Life

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  • Sami Ben Naceur
  • Adolfo Barajas
  • Alexander Massara

Abstract

Financial inclusion has become an increasingly important concern for a vast number of countries worldwide. At the same time, a fast-growing amount of literature has emerged to examine its measurement, determinants and impacts. Governments have made the promotion of it a priority. For example, the World Bank’s 2014 Global Financial Development Report (GFDR), devoted to financial inclusion, reports that more than two-thirds of regulatory and supervisory agencies have been tasked with encouraging financial inclusion, and more than 50 countries have set formal targets. Last year, the World Bank President announced a global target of universal financial access by 2020. Defined as the share of the population who use financial services, financial inclusion has proven to be linked to desirable economic outcomes above and beyond those associated with the more familiar concept of financial depth. In this chapter, we analyse the existing country-level information on both financial inclusion and the penetration or presence of Islamic banking in order to ascertain the extent to which Islamic banking has contributed to financial inclusion. This chapter tests for a possible financial inclusion of Islamic banking relationships across a wide variety of measures. Our findings suggest a weak and tentative evidence of Islamic banking’s positive impact on some types of inclusion. This weakness in the results may be partially related to data issues, including the limited coverage of Islamic banking indicators and of financial inclusion indicators among the Organization for Islamic Cooperation (OIC) countries.

Suggested Citation

  • Sami Ben Naceur & Adolfo Barajas & Alexander Massara, 2017. "Can Islamic banking increase financial inclusion?," Chapters, in: M. Kabir Hassan (ed.), Handbook of Empirical Research on Islam and Economic Life, chapter 9, pages 213-252, Edward Elgar Publishing.
  • Handle: RePEc:elg:eechap:16049_9
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    References listed on IDEAS

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    1. Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Martinez Peria, Maria Soledad, 2016. "The foundations of financial inclusion: Understanding ownership and use of formal accounts," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 1-30.
    2. M. Kabir Hassan & Mervyn K. Lewis (ed.), 2007. "Handbook of Islamic Banking," Books, Edward Elgar Publishing, number 3621.
    3. Adolfo Barajas & Ralph Chami & Seyed Reza Yousefi, 2016. "The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally?," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(5), pages 5-38, June.
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    5. World Bank, 2014. "Global Financial Development Report 2014 : Financial Inclusion," World Bank Publications - Books, The World Bank Group, number 16238, December.
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    Asian Studies; Economics and Finance;

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