Islamic Financial Inclusion: An Alternative Approach to Reach the Unbanked of Bangladesh

Islamic Financial Inclusion: An Alternative Approach to Reach the Unbanked of Bangladesh

S. M. Sohrab Uddin (University of Chittagong, Bangladesh), Mohammad Zoynul Abedin (Dalian Maritime University, China & Hajee Mohammad Danesh Science and Technology University, Bangladesh) and Nahid Afroz (Credit Rating Agency of Bangladesh, Bangladesh)
DOI: 10.4018/978-1-7998-8049-3.ch017
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Abstract

Financial Inclusion (FI), a global concern of this decade, has been accepted by development agencies, governments, and policymakers as one of the pre-eminent ways to eradicate worldwide poverty and income inequality. Consequently, authorities are looking for possible ways to include the unbanked in formal financial chain. Islamic finance, specifically Islamic banking, with its welfare-oriented principles and unique products, has been able to capture the attention of policy makers. Moreover, a major portion of the Muslim population still exclude themselves from the formal financial chain due to religious prohibition of interest-based transactions for whom Islamic finance is the only way to inclusion. Bangladesh, one of the major Muslim countries in the world, is still to bring one-fourth of its total population under formal financial chain. At this backdrop, this chapter examines the empirical contribution of Islamic banking sector in financial inclusion condition as well as development scenario of Bangladesh.
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Background

FI can be defined as the process of extending minimum financial services (deposit, low cost credit, fund transfer and insurance) to the unbanked at an affordable cost and within formal financial system. As a high policy priority concern of the current century and enabler of seven of sustainable development goals, academicians, practitioners, and policymakers are showing growing interest in FI in recent decades. After recognition as a political issue in the UK in 1997, FI has come into discussion in different meetings like G20 Summit 2010 where FI action plan was endorsed followed by formation of Global Partnership for FI (Kabakova & Plaksenkov, 2018). Moreover, the United Nations Development Program (UNDP) has launched several projects with different banks to design suitable plans for FI of the underserved from 2009. However, in most of the cases, initiatives for FI are not self-initiated rather undertaken to fulfill regulatory compliance imposed by public entities or lead by development agencies and civil activist agency through the establishment of non-government organizations (NGOs), microfinance institutions (MFIs), and co-operatives. In spite of the growing concern and collective efforts, the worldwide formal institutional network covers only 69 percent of the total adult population which is even lower in case of disadvantaged segments of population.

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