GLOBAL FINANCIAL DEVELOPMENT REPORT 2014
BOX 1.4
FINANCIAL INCLUSION: IMPORTANCE, KEY FACTS, AND DRIVERS
Islamic Finance and Inclusion
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TABLE B1.4.2 Islamic Banking, Religiosity, and Household Access to Financial Services Indicator
OIC dummy GDP per capita, US$, 1,000s Islamic assets per adult, US$, 1,000s Observations R-squared
All countries
5.79*** 0.02 −0.18* 137 0.21
OIC countries
OIC countries with religiosity > 85%
Non-OIC countries
.. 0.38** −0.61*** 41 0.06
.. 0.43** −0.65** 32 0.08
.. −0.005 −3.85 96 0.00
Sources: Based on the Global Financial Inclusion (Global Findex) Database, World Bank, Washington, DC, http://www.worldbank.org/globalfindex; World Development Indicators (database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development-indicators; Bankscope (database), Bureau van Dijk, Brussels, http://www.bvdinfo.com/en-gb/products/company-information/international/bankscope. Note: Dependent variable: percentage of adults citing religious reasons for not having an account. Regressions include a constant term. Robust standard errors are reported. .. indicates that the variable could not be included in the regression. OIC = Organization of Islamic Cooperation. Significance level: * = 10 percent, ** = 5 percent, *** = 1 percent.
expensive than conventional loans (Demirgüç-Kunt, Klapper, and Randall, forthcoming). Global surveys on Islamic microfinance completed by the Consultative Group to Assist the Poor (CGAP) in 2007 and 2012 provide some initial insights into the rapidly growing Islamic microfinance industry. The 2007 CGAP survey found fewer than 130 and 500,000 Islamic MFIs and customers, respectively (Karim, Tarazi, and Reille 2008). Within five years, these figures more than doubled, reaching 256 MFIs and 1.3 million active clients (ElZoghbi and Tarazi 2013). These figures are on the conservative side because they are based on data for 16 of the 57 OIC member countries (excluding economies such as the Islamic Republic of Iran, Malaysia, and Turkey, which have active Islamic fi nance industries). In short, the estimated unmet demand for Shari‘a-compliant financial products, in conjunction with the rapid growth of Islamic MFIs, as
well as the astonishing growth of the overall Islamic fi nance industry, all point to the growing attractiveness of Shari‘a-compliant financial products and the supply shortage of such products.c Religiosity also has an impact on the access of fi rms to fi nance in OIC countries. The number of Islamic banks per 100,000 adults is negatively correlated with the proportion of fi rms identifying access to fi nance as a major constraint. The negative correlation is greater if one focuses on OIC countries and greater still if one focuses on a subset of OIC countries with a religiosity index above 85 percent (table B1.4.3). These fi ndings, which are mainly driven by small fi rms (fi gure B1.4.1), suggest that increasing the number of Shari‘a-compliant fi nancial institutions can make a positive difference in the operations of small fi rms (0–20 employees) in Muslimpopulated countries by reducing the access barriers to formal fi nancial services.
TABLE B1.4.3 Islamic Banking, Religiosity, and Firm Access to Financial Services Indicator
All countries
OIC countries
OIC countries with religiosity > 85%
OIC dummy GDP per capita, US$, 1,000s Islamic banks per 100,000 adults Observations R-Squared
8.59** −1.23*** −52.70* 107 0.25
.. −6.12*** −61.97* 32 0.35
.. −5.79*** −108.76** 24 0.38
Sources: Calculations based on Enterprise Surveys (database), International Finance Corporation and World Bank, Washington, DC, http://www.enterprisesurveys .org; World Development Indicators (database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development-indicators; Bankscope (database), Bureau van Dijk, Brussels, http://www.bvdinfo.com/en-gb/products/company-information/international/bankscope. Note: Dependent variable: percentage of firms identifying access to finance as a major constraint. All regressions include a constant term. Robust standard errors are reported. .. indicates that the variable was not included in the regression. OIC = Organization of Islamic Cooperation. Significance level: * = 10 percent, ** = 5 percent, *** = 1 percent.
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