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This book explores the relationships between financial inclusion, poverty and inclusive development from Islamic perspectives. Financial inclusion has become an important global agenda and priority for policymakers and regulators in many Muslim countries for sustainable long-term economic growth. It has also become an integral part of many development institutions and multilateral development banks in efforts to promote inclusive growth. Many studies in economic development and poverty reduction suggest that financial inclusion matters. Financial inclusion, within the broader context of inclusive development, is viewed as an important means to tackle poverty and inequality and to address the sustainable development goals (SDGs). This book contributes to the literature on these topics and will be of interest to researchers and academics interested in Islamic finance and financial inclusion.



Erratum to: Financial Inclusion and Poverty Alleviation

Without Abstract
Muhamed Zulkhibri, Abdul Ghafar Ismail

Trends and Challenges Facing Financial Inclusion and Inclusive Development in Muslim Countries


Chapter 1. Quality of Institutions and Inclusive Financial Development in the Muslim World

This chapter explores the linkages between financial development and quality of institutions with poverty using cross-sectional and panel data sets for Islamic countries. The empirical findings show that financial inclusion and development significantly alleviate poverty in the Muslim world. However, poverty-reducing effect of financial development is not robust to the use of different measures of financial development. In contrast, the poverty-reducing effect of institutional quality remains robustly negative and significant in all models. Corruption turns out to be the most significant predictor of poverty in the Muslim world. This study concludes that both inclusive financial development and institutions are important to address the issue of widespread poverty. Nevertheless, these are the institutions, which are prerequisite to eradicate the poverty because institutions also play a mediating role to ensure poverty-reducing effect of financial development.
Muhammad Tariq Majeed

Chapter 2. Financial Intermediation, Development, and Access to Finance in an Islamic Environment

Micro survey data from 36,135 firms in 41 Islamic countries are used to address two questions: first, what are the firm-specific and country-level predictors of financing constraints of firms and, second, whether there are differences between low- and high-income Islamic countries. The firm-specific characteristics are shown to predict financing constraints of firms. Differences are documented between low- and high-income Islamic countries. Firm age, size, sector of activity, export and ownership status of firms appear to be robust predictors of access to finance in low-income countries, whereas only a few of these determinants are found to be significant in high-income Islamic countries. Finally, country-level indicators that measure economic development, income distribution, and financial infrastructure also affect the role of firm-specific characteristics on financial constraints.
Charilaos Mertzanis

Chapter 3. Financial Inclusion for Women: Impact Evaluation on Islamic Microfinance to Women’s Empowerment in Indonesia

This chapter evaluates the impact of the Islamic microfinance institution toward the women empowerment. We surveyed approximately two hundred and forty women who had been involved in the microfinance of the Misykat program in the Dompet Peduli Ummat of Daarut Tauhid and BAZNAS in Bandung. The primary data collection was held in two sessions, starting from June to December 2014. The causal effect of the credit on empowerment was identified using quasi-experimental setting with proxy controls for latent heterogeneity between the control and the treatment groups. The study suggests that women involvement in the microfinance improves their position within the household through (i) access to independent income; (ii) control over savings and credit use; and (iii) ability to bring productive asset to household economy. In addition, using the matching propensity score and the instrumental variable methods helps address the bias selection in a cross-sectional setting.
Umi Karomah Yaumidin, Diah Setiari Suhodo, Putri Irma Yuniarti, Achsanah Hidayatina

Chapter 4. Financial Inclusion and Poverty Alleviation in Muslim-majority Countries: The Role of Islamic Finance and Qard Hassan

Global Findex database reports that 75% or about one billion adults among self-identified Muslims do not have an account in a formal financial institutions. The first part of this chapter suggests that overall access to Islamic financial products is positively correlated with levels of financial inclusion in Muslim majority countries. One such product is Qard Hassan and the second part of this chapter highlights its theoretical potentials in reducing poverty and increasing shared prosperity. This theoretical treatment is then complemented with the third part of the chapter where a case study of Akhuwat Foundation, a Pakistani Islamic microfinance organization operating on a Qard Hassan model is presented in some detail and its relative success in breaking the cycle of poverty through Qard Hassan is highlighted.
Amin Mohseni-Cheraghlou

Institutions and Instruments for Financial Inclusion and Inclusive Development in Muslim Countries


Chapter 5. Application of Zakat to Food Security in the Context of Low-Income Rural Areas in Bangladesh: A Conceptual Model

Food security is at the forefront of worldwide policy debates. Food security is not only about production, but also includes accessibility, availability, and affordability of nutritious food. Zakat plays a central role in Islamic economic welfare system. The objective of this study is to outline a model to use Zakat as a tool to improve food security as well as fulfill the goal of taking care of the poor and needy of a rural locality. This faith-based novel approach to inclusive development would allow more flexibility to integrate moral and ethical codes in the process. The most vulnerable households among the eligible recipients of food as Zakat would receive food vouchers or ration cards, giving them easy access to the food bank on a weekly or monthly basis.
Ishrat Hossain

Chapter 6. Behavioral Dimensions of Islamic Philanthropy: The Case of Zakat

This chapter studies the behavior of individual Islamic donors who make a specific type of religious contribution called zakat. It seeks to provide a fundamental understanding of what governs the behavior of these donors—the triggers and motivators, traits and attributes, and preferences. The study uses hierarchical cluster analysis to develop psychographic profiles of individual Islamic donors or groups among them. Interestingly, two of the three clusters closely resemble subsets of the overall sample, when disaggregated on the basis of donor’s country of origin, indicating the possibility that Islamic donors from a given country may be displaying a distinct behavioral pattern. This raises a more profound possibility that the national identity of the donor associated with a unique social, economic, legal, and political environment may be a key influencer of the way she/he engages in matters pertaining to faith. The evidence highlights the need to give due importance to the observed diversity among zakat donors in any initiative to develop core principles, regulatory standards, institutional infrastructure, and models of governance for the development of this component of the global Islamic social finance sector.
Mohammed Obaidullah, Turkhan Ali Abdul Manap

Chapter 7. The Impact of Zakat Programs from Human Development Perspectives: An Empirical Evaluation

This chapter analyzes the impact of Zakat on to the welfare of household of Zakat recipient (mustahiq). This study utilized human development index (HDI) as the indicator of welfare, which has been disaggregated at household level. The study performed two times repeated questionnaires to get the sample, and distributed to beneficiaries of productive-based Zakat who have received funding from Zakat institutions through two-stage cluster sampling. The study suggests that the level of human development index of household who receives productive-based Zakat is significantly higher than the first period. Moreover, through panel data regression, the results show that the variable of productive-based Zakat is positively correlated with the level of HDI. Therefore, it can be concluded that Zakat, particularly productive-based Zakat, can play important role to improve the welfare of poor household.
Mohammad Soleh Nurzaman

Chapter 8. The Nature of Waqf Land and Properties Development in Muslim Countries

This chapter examines the nature of waqf land and properties development and reviews the role of institutions in waqf land and properties development in Muslim countries. The study shows that the development of waqf land faces many problems and challenges among others such as lack of financial resources, undeveloped and unproductive waqf land, loopholes in the legal framework, unregistered waqf land, waqf on leasehold land, and land classified as heritage. Accordingly, the potential contribution of these institutions hinges on improving its efficiency. Thus, this study proposes a new framework that Awqaf institutions in Muslim countries should consider undertaking waqf land development through the issuance of sukuk and developing cash waqf fund.
Muhamed Zulkhibri

Chapter 9. Relationship Between Intention and Actual Support Toward the Construction of Modern Waqf-Based Hospital in Uganda

This chapter makes use of the theory of planned behavior to identify factors that motivate intention toward Waqf giving. The chapter examines the relationship between intention and actual support toward the construction of modern Waqf-based hospital in Uganda. The study adopted factor analysis, principal component analysis, and Structural Equation Modeling (SEM) to analyze data from 300 valid questionnaires. The findings reveal that three motivating factors, namely attitude, moral duties, and religious duties significantly and positively influence Muslim community’s intentions to provide actual financial and non-financial support for the construction of modern Waqf-based hospital in Uganda. Accordingly, Muslim religious authorities and relevant parties should use these three motivating factors to influence Muslim community decision to support Waqf-based projects for their socioeconomic development.
Mustafa Omar Mohammed, Umar Ahmed


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