Development of integrated Islamic finance-based index of financial inclusion using zakat and cash waqf: A preliminary study in Malaysia

Abstract

Financial inclusion is a priority agenda in many countries. While the importance of financial inclusion index is widely recognized, the literature lacks a constructive discussion on its measurement in the light of Islamic finance since it is believed that only by the incorporation of the Shariah-based instruments, the level of access to finance can be improved. The study aims to develop a methodology for the computation of an integrated Islamic finance-based index of financial inclusion in Malaysia. Based on the current measurement of financial inclusion index (IFI) in Malaysia, this study employs a self-administered questionnaire and secondary data from Jabatan Waqaf, Zakat dan Haji (JAWHAR) and Yayasan Waqaf Malaysia (YWM), to measure the integrated Islamic finance based financial inclusion index for year 2011 and 2015. Zakat and cash waqf indicators are added in the index computation to represent Islamic finance components. Depending on the value of the index, a country is classified into four categories; high, above average, moderate or low integrated Islamic finance-based of financial inclusion. It is found that the level of financial inclusion using Islamic finance indicator in Malaysia is above average. The overall index level is increased from 0.49 in year 2011 to 0.55 in year 2015. Interestingly, most of the level of zakat and cash waqf indicator indexes are low which indicate that these channels require specific attention to tackle financial inclusion in Malaysia. It is hoped that the findings would be useful for the development of financial inclusion index using Islamic finance approach and monitoring the impact of zakat and waqf to the society.

Perceived inclusion of Islamic finance: The effects of attitudes, experience, literacy, religiosity, and social influences

“…Islamic finance, which operates under the principle of public interest (Qoyum, 2018), is a catalyst for financial inclusion (Kamil et al, 2020). Islamic finance should promote financial inclusion through Islamic social institutions such as zakat, sadaqat, awqaf, trustee, and other formal financing and banking services, as well as Takaful (Alawode et al, 2020;Seman et al, 2021;Zulkhibri, 2016). Thus, Inclusive Islamic financial systems require strong and sustainable Islamic financial institutions, including banks, insurance, zakat, awqaf, and trustee (Amanah) institutions (Iqbal, 2014;Jouti, 2018;Moh'd Khamis, Isa, & Yusuff, 2021;Mustafa, Baita, & Usman, 2018;Naceur, Barajas, & Massara, 2015).…”

“…Several studies have discussed aspects of financial inclusion from different perspectives, including barriers, innovative strategies, and surveys (Demirgüç-Kunt et al, 2022;Demirgüç-Kunt et al, 2018;Ernest & Young, 2017;Jackson & Massad, 2022;Ozili, 2020;Schuetz & Venkatesh, 2020;Sujlana & Kiran, 2018). Most prior studies on the financial inclusion of Islamic finance are based on supply-side determinants (Seman, Jamil, & Hashim, 2021). Zulkhibri (2016) cautioned that Islamic finance still has a long way to go to achieve its financial inclusion goals.…”

Analisis Pengaruh Inklusifitas Keuangan Syariah, Pendidikan Dan Ketimpangan Terhadap Tingkat Kemiskinan Di Indonesia Tahun (2019-2023)

“…Prinsip perbankan syariah yang mengutamakan sistem pembagian keuntungan dan fokus pada mashlahah untuk umat yang membuat keuangan Islam tidak asing dengan konsep inklusi keuangan, karena Islam sendiri menekankan kesetaraan dan keadilan. Salah satu cara akses keuangan meningkat yaitu dengan menggabungkan instrumen berbasis syariah (Seman et al, 2019). Konsep dan kebijakan keuangan syariah yang inklusif bertujuan untuk meningkatkan kesejahteraan umum dengan memberikan masyarakat akses keuangan yang mudah, aman, dan sesuai (Lubis & Ramadhoni, 2019).…”

Islamic Social Finance In Addressing Poverty Reduction And Economic Growth: Using Structural Equation Modeling

“…Waqf implies a devout and charitable donation. Generally, Waqf has been the mechanism for social development that incorporates maintaining and providing libraries, mosques, shops, scholarships, and educational institutions (Seman et al, 2021;Mohadi & Akli, 2022;Muhammad et al, 2023). Waqf serves as an instrument for eradicating poverty and the socio-economic development of Muslim societies.…”