Financial inclusion is an important thrust in development by ensuring that every economic activity, geographical region and segment of society have access to financial services. Financial inclusion at its most basic level, starts with having a bank account. But it doesn’t stop there.
Financial inclusion has been broadly recognized as critical in reducing poverty and achieving inclusive economic growth. Financial inclusion is not an end in itself, but a means to an end.
Access to accounts and to savings and payment mechanisms increases savings, empowers women, and boosts productive investment and consumption. Access to credit also has positive effects on consumption—as well as on employment status and income and on some aspects of mental health and outlook.
Digitizing payments can play an important part in financial inclusion. Shifting payments such as wages or government transfers from cash into accounts can increase the number of adults with an account. Moving from cash-based to digital payments has many potential benefits, for both senders and receivers. Lending platforms, eliminating intermediary, peer-to-peer lending, equity or loan based crowdfunding are among the fintech instruments contributing to financial inclusion.
Islamic ﬁnance addresses the issue of ﬁnancial inclusion from two directions one through promoting risk-sharing contracts which provide a viable alternative to conventional debt-based ﬁnancing and the other through speciﬁc insturements of redistribution of the wealth among the society, and they complement one another to offer a comprehensive approach to enhance ﬁnancial inclusion, eradicating poverty, and to build a healthy and vibrant economy.
Policy makers in OIC countries can take several steps to achieve the obiective of enhancing inclusion through Islamic ﬁnance. These sleps could include institutionalizing Islam’s redistributive instruments such as zakah, waqf and qard-al—hassan which could play a catalytic role to enhancing access to ﬁnance.