Islamic banking stability amidst the COVID-19 pandemic: the role of digital financial inclusion

Hasanul Banna, M. Kabir Hassan, Rubi Ahmad and Md Rabiul Alam

International Journal of Islamic and Middle Eastern Finance and Management, 2021, vol. 15, issue 2, 310-330

Abstract: Purpose - This paper aims to explore the role of digital financial inclusion (DFI) in stabilizing the Islamic banking sector amidst the current COVID-19 pandemic. Design/methodology/approach - This study has used the Panel-Corrected Standard Errors (PCSE), Two-Stage Panel Least Squares-Instrumental Variables (2SLS-IV) and Two-Step System Generalized Method of Moments (2SGMM) dynamic panel estimation method to investigate the DFI-Islamic banking stability nexus using an unbalanced panel data of 65 Islamic banks from six countries over the period 2011–2020. Findings - The result suggests that greater implementation of DFI promotes Islamic banking stability, which reduces the default risk of the banks in the studied region. Consequently, incorporating DFI into the Islamic banking sector encourages inclusive economic growth that can keep the financial sector sustainable even in a crisis period like the current COVID-19 pandemic. Originality/value - Unlike previous studies, the authors have focused mainly on DFI and the Islamic banking sector. This is one of the first to explore how DFI contribute to the stability and productivity of the Islamic banking sector during the pandemic. Also, this study provides fresh evidence on how the supply and demand side of DFI impact Islamic banking stability.

Keywords: Digital financial inclusion; FinTech; Islamic banks; Banking stability; COVID-19; E44; F65; G21; G28 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-08-2020-0389

DOI: 10.1108/IMEFM-08-2020-0389

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