Can Islamic Banking Increase Financial Inclusion?

Sami Ben Naceur, Adolfo Barajas and Alexander Massara

No 2015/031, IMF Working Papers from International Monetary Fund

Abstract: The paper analyses existing country-level information on the relationship between the development of Islamic banking and financial inclusion. In Muslim countries—members of the Organization for Islamic Cooperation (OIC)—various indicators of financial inclusion tend to be lower, and the share of excluded individuals citing religious reasons for not using bank accounts is noticeably greater than in other countries; Islamic banking would therefore seem to be an effective avenue for financial inclusion. We found, however, that although physical access to financial services has grown more rapidly in the OIC countries, the use of these services has not increased as quickly. Moreover, regression analyis shows evidence of a positive link to credit to households and to firms for financing investment, but this empirical link remains tentative and relatively weak. The paper explores reasons that this might be the case and suggests several recommendations to enhance the ability of Islamic banking to promote financial inclusion.

Keywords: WP; OIC country; OIC firm; OIC × IB; working capital; Islamic banking; financial inclusion; Financial Possibility Frontier; commercial bank; firm Use; Credit; Commercial banks; Global (search for similar items in EconPapers)
Pages: 41
Date: 2015-02-13
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Citations: View citations in EconPapers (37)

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Chapter: Can Islamic banking increase financial inclusion? (2017)
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