Islamic Banking: A New Approach for Financial Inclusion

This study aims to explore using Islamic banking as an approach to tackle the challenges of financial inclusion in the Middle East and Sub-Saharan Africa where the majority of populations are Muslims and have challenges in accessing the financial instruments.

Two major barriers to financial inclusion in the region are voluntary exclusion due to religious reasons and the high cost of interest charged to small borrowers. Islamic banking seems to offer reasonable solution to these challenges, where the interest is replaced with other tools based on partnerships and social cooperation. However, banks might face different types of challenges, such as regulations and customer reach in absence of profitable margins. Other factors impacting adoption will be offering affordable access to the services without heavy investments from the banks, and maintaining high service standards to create trust and drive adoption.