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Can Islamic Banking Increase Financial Inclusion?

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Can Islamic Banking Increase Financial Inclusion?

IMF,

5 min read
5 take-aways
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What's inside?

Muslims are flocking to financial institutions, but the rise of Islamic banking might not be the reason.

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Editorial Rating

7

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Recommendation

Some Muslims may avoid formal banking relationships to keep from running afoul of Sharia, so the growing Islamic financial sector would seem a likely vehicle through which to serve currently unbanked Muslim consumers and businesses. But according to economists Sami Ben Naceur, Adolfo Barajas and Alexander Massara, there’s little evidence of a correlation between Islamic banking and Muslims’ financial inclusion. While its topic is weighty, the report suffers from a somewhat muddled and disorganized presentation. Nonetheless, getAbstract recommends it to bankers and economists for its insights into the Muslim world’s complicated relationship with banking.

Summary

International efforts to include more of the world’s unbanked citizens in the financial system, thereby optimizing global economic growth, run up against the issue of “voluntary exclusion.” More than half of all adults on the planet don’t have bank accounts, and 5% of them cite religious reasons for their choice. That proportion is higher in some Muslim countries: For instance, more than one-third of people in Afghanistan say they avoid banks for religious reasons, as do about one-quarter of the residents of Iraq, Tunisia and Saudi Arabia. The fast-growing Islamic financial sector – whose assets have more doubled...

About the Authors

Sami Ben Naceur, Adolfo Barajas and Alexander Massara are economists at the International Monetary Fund.

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