Financial Inclusion and Islamic Banking in the Middle East and North Africa

In this thesis, we investigated the impact of Islamic banking on financial inclusion in 14 Middle Eastern and North African (MENA) countries. For this purpose, we employed a probit estimation method on the 2014 World Bank Global Findex database, analysing the association between individual characteristics and the impact of Islamic banking among MENA countries with different levels of development. We found that financial inclusion, particularly among the middle-income countries of MENA, is relatively worse than the world average. Our estimation model indicates that financial inclusion in MENA is positively affected by the characteristics of being male, wealthier, and older. Interestingly, we found that education is not positively associated with the use of formal banking accounts in the middle-income countries, but it is, as expected, in the high-income countries. We found that, in general, Islamic banking share has a negative impact on financial inclusion. But we also documented with empirical evidence that Islamic banking helps individuals with a high degree of religious affiliation to be financially included. Furthermore, estimates show that the effect of Islamic banking on financial inclusion is greater in middle-income countries than in high-income countries within MENA. Keywords: financial inclusion, financial intermediaries, financial services, Islamic banking, MENA.