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Can Islamic Banking Increase Financial Inclusion?

Can Islamic Banking Increase Financial Inclusion? by Sami Ben Naceur
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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.
International Monetary Fund; February 2015
41 pages; ISBN 9781498372251
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Title: Can Islamic Banking Increase Financial Inclusion?
Author: Sami Ben Naceur; Adolfo Barajas; Alexander Massara