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.