FINANCIAL INCLUSION INDEX: THE CASE OF COUNTRIES WITH PRESENCE OF ISLAMIC FINANCE

An established measure of financial inclusion has still not been found and the link between Islamic finance and financial inclusion has yet to be established. This paper aims to fill the gap in the discourse on Islamic finance by examining the level of financial inclusion in 44 countries in which Islamic finance has an established presence. A multidimensional Financial Inclusion Index (FII) is constructed, which incorporates four indicators (ATMs, branches, deposits and loans) covering the period from 2013 to 2019. The results show that the average level of financial inclusion in these countries is low but with significant variation between countries. Muslim countries in general have lower levels of financial inclusion than the non-Muslim countries. However, some Muslim countries have managed to achieve medium level of financial inclusion by leveraging on Islamic finance, particularly Islamic financial technology (fintech). While the index is easy to compute, the sample is relatively small and the study is unable to include indicators of new fintech channels due to data constraints. Despite this caveat, the findings of this study provide a bigger case for policymakers to further develop and promote Islamic finance as a means to improve financial inclusion, especially in Muslim countries. Further research in this area is recommended.