Can Islamic Banking Increase Financial Inclusion?

Author/Editor:

Adolfo Barajas ; Alexander Massara ; Sami Ben Naceur

Publication Date:

February 13, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 15/31

Subject:

English

Publication Date:

February 13, 2015

ISBN/ISSN:

9781498370813/1018-5941

Stock No:

WPIEA2015031

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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