Can Islamic Banking Increase Financial Inclusion?

42 Pages Posted: 24 Mar 2015

See all articles by Sami Ben Naceur

Sami Ben Naceur

International Monetary Fund (IMF)

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Alexander Massara

International Monetary Fund (IMF)

Date Written: February 2015

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 analysis 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: Islamic banking, Financial services, Commercial banks, Bank credit, Bank deposits, Household survey data, Cross country analysis, financial inclusion, Financial Possibility Frontier, finance, bank branches, loans, microfinance, financial institutions, interest

JEL Classification: E44, E52, F60, G20, O16

Suggested Citation

Ben Naceur, Sami and Barajas, Adolfo and Massara, Alexander, Can Islamic Banking Increase Financial Inclusion? (February 2015). IMF Working Paper No. 15/31. Available at SSRN: https://ssrn.com/abstract=2584382

Sami Ben Naceur (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

Alexander Massara

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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