Financial Inclusiveness in Islamic Banking: Comparison of Ideals and Practices Based on Maqasid-E-Shari’Ah

4th International Conference on Inclusive Financial Sector Development, 17-18 November 2015

21 Pages Posted: 12 Jan 2016 Last revised: 27 Dec 2016

See all articles by Abdul Ghafar Ismail

Abdul Ghafar Ismail

Islamic Development Bank - Islamic Research and Training Institute; Universiti Kebangsaan Malaysia/Islamic Development Bank

Mohd Adib Ismail

National University of Malaysia (UKM) - School of Economics

Shahida Shahimi

Universiti Kebangsaan Malaysia

Salman Ahmed Ahmed Shaikh

Islamic Economics Project

Date Written: November 17, 2015

Abstract

In this study, we attempt to document the progress in Islamic banking industry of Pakistan towards fostering an egalitarian and equitable financial intermediation. We use a set of quantitative indicators to objectively asses the performance of Islamic banks towards fostering a participative, inclusive, cost effective and real sector oriented financial intermediation. We highlight that currently, the performance of Islamic banks on these fronts leaves much to be desired. We highlight that the low finance to deposit ratio and high average cost of financing is inconsistent with Maqasid-e-Shari'ah. We also identify various categories of poor people who need finance for their health, education and small business working capital needs, but they cannot be served by Islamic banks by using the available product structures. We give a geographical presence of Islamic banks which shows that they are mainly based in big urban cities. We argue that most of the Islamic banking debt based products are close, but relatively expensive substitutes. Finally, we discuss that the distinctive and preferable imperfect substitute product structures like equity based financing contracts are not acceptable to the major part of the real sector industries as well as to the Islamic banking stakeholders, i.e. depositors and shareholders in their current form.

Keywords: Islamic Banking, Islamic Finance, Financial Inclusion, Microfinance

JEL Classification: A1, H2, G0, B5

Suggested Citation

Ismail, Abdul Ghafar and Ismail, Mohd Adib and Shahimi, Shahida and Shaikh, Salman Ahmed, Financial Inclusiveness in Islamic Banking: Comparison of Ideals and Practices Based on Maqasid-E-Shari’Ah (November 17, 2015). 4th International Conference on Inclusive Financial Sector Development, 17-18 November 2015, Available at SSRN: https://ssrn.com/abstract=2713277

Abdul Ghafar Ismail

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Universiti Kebangsaan Malaysia/Islamic Development Bank ( email )

Research Center for Islamic Economics and Finance,
Bangi, 43600
Malaysia

Mohd Adib Ismail

National University of Malaysia (UKM) - School of Economics ( email )

Bangi, Selangor
Malaysia

Shahida Shahimi

Universiti Kebangsaan Malaysia ( email )

School of Economics
Faculty of Economics and Management
UKM Bangi, Selangor 43600
Malaysia

HOME PAGE: http://www.ekonis-ukm.my

Salman Ahmed Shaikh (Contact Author)

Islamic Economics Project ( email )

Karachi, Sindh
Pakistan

HOME PAGE: http://www.islamiceconomicsproject.com

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