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

Salman Ahmed Shaikh ()

MPRA Paper from University Library of Munich, Germany

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 (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2015-11-17
New Economics Papers: this item is included in nep-mfd
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