Financial Inclusion and Poverty Alleviation: Perspectives from Islamic Institutions and Instruments

334 Pages·2017·4.233 MB·English

by  Muhamed Zulkhibri,Abdul Ghafar Ismail (eds.)

PALGRAVE STUDIES IN
ISLAMIC BANKING,
FINANCE, AND ECONOMICS
FINANCIAL
INCLUSION AND
POVERTY
ALLEVIATION
Perspectives from Islamic
Institutions and Instruments
EDITED BY
Muhamed Zulkhibri,
Abdul Ghafar Ismail
Palgrave Studies in Islamic Banking,
Finance, and Economics
Series Editors
Zamir Iqbal
Islamic Development Bank
Potomac
MD, USA
Jahangir Sultan
Bentley University
Boston
MA, USA
Mehmet Asutay
Durham University
Durham, UK
The aim of this series is to explore the various disciplines and sub-
disciplines of Islamic banking, finance and economics through the
lens of theoretical, practical, and empirical research. Monographs and
edited collections in this series will focus on key developments in the
Islamic financial industry as well as relevant contributions made to
moral economy, innovations in instruments, regulatory and supervisory
issues, risk management, insurance, and asset management. The scope
of these books will set this series apart from the competition by offer-
ing in-depth critical analyses of conceptual, institutional, operational,
and instrumental aspects of this emerging field. This series is expected to
attract focused theoretical studies, in-depth surveys of current practices,
trends, and standards, and cutting-edge empirical research.
More information about this series at
http://www.palgrave.com/series/14618
Muhamed Zulkhibri · Abdul Ghafar Ismail
Editors
Financial Inclusion
and Poverty
Alleviation
Perspectives from Islamic Institutions
and Instruments
Editors
Muhamed Zulkhibri Abdul Ghafar Ismail
Islamic Research and Training Institution Islamic Research and Training Institution
Islamic Development Bank Islamic Development Bank
Jeddah, Saudi Arabia Jeddah, Saudi Arabia
Palgrave Studies in Islamic Banking, Finance, and Economics
ISBN 978-3-319-69798-7 ISBN 978-3-319-69799-4 (eBook)
https://doi.org/10.1007/978-3-319-69799-4
Library of Congress Control Number: 2017956910
© The Editor(s) (if applicable) and The Author(s) 2017
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Foreword
Policy-makers and regulators globally have acknowledged the impor-
tance of financial inclusion for inclusive development. Inclusive develop-
ment has the dual benefit of reducing poverty and improving welfare.
Financial inclusion is about human development and empowerment and
about giving people the means to improve their own lives. Moreover, the
concept of financial inclusion from an Islamic perspective is not new.
Islamic finance offers a sound framework that could enhance financial
inclusion and cater the needs of people via a two-pronged approach: (i)
using risk-sharing financing instruments to develop microfinance for
micro-enterprises and SMEs; and, (ii) using Islamic solidarity-based
instruments such as Zakah, Awaqf, and Qard-al-Hasan to provide basic
social safety nets to the marginalized segment of the society.
This book is about understanding financial inclusion and inclusive
development in Muslim countries from two dimensions, namely Islamic
institutions and instruments. The book is intended to fill the gap in
the academic and policy literature on issues related to Islamic institu-
tions and instruments that could be used by policy-makers in enhancing
financial inclusion and inclusive development. Some of the prominent
contributors have participated in the 10th International Conference on
v
vi Foreword
Islamic Economics and Finance, which was jointly organized by Islamic
Research and Training Institute, Islamic Development Bank, the Qatar
Faculty of Islamic Studies Qatar Foundation, and the International
Association of Islamic Economics.
I believe that the topic of financial inclusion and inclusive develop-
ment is a subject of great importance for policy-makers, academics, and
practitioners and contribute to the debate on financial inclusion and
inclusive development in Muslim countries. Moreover, I hope this book
will contribute in sharing knowledge and provide new insights for the
various stakeholders. I would like to take this opportunity to congratu-
late the editors for publishing this important book. Finally, I would like
to extend my deepest gratitude to those who have contributed and ren-
dered their support for this publication initiative.
June 2017 Prof. Dr. Mohammed Azmi Omar
Islamic Research and Training Institution
Islamic Development Bank
Preface
Financial Inclusion and Inclusive Development:
Perspectives from Islamic Institutions
and Instruments
Introduction
A growing interest in inclusive growth arises from the realization that
such gaps in productive potential and access are not good for develop-
ment. The persistence of such gaps has raised interest in the concept of
inclusive growth. Inclusive growth is defined as growth that is sustain-
able and sufficiently broad based to incorporate a number of economic
sectors and mobilize large shares of the local labour force (Commission
on Growth and Development 2008; De Mello and Dutz 2012). Unlike
pro-poor growth, inclusive growth focuses on growth in equity and
equality of opportunity across a wider range of firms and individuals. In
the least-developed countries, sustainable patterns of pro-poor growth
and inclusive development are still a major concern. On the other hand,
inclusive development can be referred to a process of improving human
well-being by involving all the segments of the society at all the stages
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viii Preface
of production and sharing its benefits. Achieving this requires growth in
productive potential and employment together with unfettered access to
markets and unbiased regulatory environments. For policymakers, pro-
moting inclusive growth includes balancing growth across sectors, i.e.
between private stakeholders and the government and between tradable
and non-tradable sectors (De Mello and Dutz 2012).
Promoting inclusive growth does not mean redistributing assets and
opportunities from the rich to the poor or from large firms to small
firms and from urban to rural areas. While much of the focus of the
existing inclusive growth approaches is reaching segments at the Bottom
of the Pyramid (BOP) and extending private-sector activity to disadvan-
taged groups (i.e. rural areas, SMEs, women, and unskilled workers),
this is only part of the story. In the process of economic growth, pat-
terns of specialization and concentration of resources and talents across
firms and individuals, cities and sectors naturally arise and are impor-
tant engines of growth and dynamism. World top exporting countries,
high-performing clusters and cities as well as top-notch institutions are
an equally important part of the inclusive growth story. They are vital
sources of dynamism and specialization, which make the diffusion and
diversification of economic opportunities across broader groups possible
and sustainable.
The book is about understanding financial inclusion and inclusive
development in Muslim countries from three dimensions, namely Islamic
theoretical perspectives, institutions and instruments. The book is organ-
ized into two parts: (i) Trends and Challenges Facing Financial Inclusion
and Inclusive Development in an Muslim Countries; and (ii) Institutions
and Instruments for Financial Inclusion and Inclusive Development
in Muslim Countries. In Part I, Chap. 1 by Muhammad Tariq Majeed
examines poverty effects of finance and institutions using a panel data for
OIC developing countries. Chapter 2 by Charilaos Mertzanis analyzes
the impact of firm-specific and country-specific factors on the extent to
which firms in Islamic countries face constraints to finance. Chapter 3
by Umi Yaumidin, Putri Irma Yuniarti, Diah Setiari Suhodo and
Achsanah Hidayatina empirically examine the impact of Islamic micro-
finance on women’s empowerment in Indonesia. Chapter 4 by Amin
Preface ix
Mohseni-Cheraghlou provides evidence that Islamic financial instru-
ments can help reduce poverty and increase shared prosperity through
enhancing financial inclusion among Muslim communities.
In Part II, Chap. 5 by Ishrat Hossain outlines a model to use Zakah as
a tool to improve food security as well as fulfil the goal of taking care of
the poor and needy of a rural locality. Chapter 6 by Muhammad Ayub
and Abu Umar Faruq investigates how the Takaful system can be trans-
lated as shared responsibility and cooperative risk and reward sharing
vehicle. Chapter 7 by Mohammad Nurzaman examines the impact of
productive-based Zakat program conducted by Zakat institution within
the perspective of human development approach. Finally, Chap. 8 by
Mustafa Omar Mohammed and Umar Ahmed examines the relation-
ship between intention and actual support towards the construction of a
modern Waqf-based hospital in Uganda.
Trends and Challenges Facing Financial
Inclusion and Inclusive Development
in Muslim Countries
Financial inclusion has become an important global agenda and emerg-
ing priority for policymakers and regulators in financial sector devel-
opment in ensuring sustainable long-term economic growth. This
significant development reflects the importance and global recognition
of financial inclusion to socio-economic development and inclusive
growth. The Group of Twenty (G20) Summit in 2010 has recognized
financial inclusion as one of the core pillars of the global development
agenda. Financial inclusion has also become an integral part of many
development institutions and multilateral development banks (MDBs)
in efforts to promote inclusive growth.
Financial inclusion, within the broader context of inclusive devel-
opment, is viewed as an important means to tackle poverty and ine-
quality and to address the Sustainable Development Goals (SDGs).
Financial inclusion is defined as a process that ‘ensures the ease of