ISLAMIC BANKING: A NEW APPROACH FOR FINANCIAL INCLUSION.

Byline: AHSAN NISAR

There are different barriers to financial inclusion, one of these is the voluntary exclusion due to religious reasons and the other is the high cost of interest charged to small borrowers. Islamic banking seems to offer reasonable solution to these challenges where the interest is replaced with other tools based on partnerships and social cooperation. However, banks might be facing different type of challenges such as the regulation and customer reach in absence of profitable margins. The other factors impacting adoption will be to offer an economic access to the service without heavy investments from the banks, and maintain high service standard to create trust and drive adoption.

There is no doubt that access to financial services is becoming more important than ever to help in building sustainable and quality livelihood for the people and ensure the stability of socio-economical system. The majority of population of Muslims lives in the least financially inclusive part of the world. The term financial inclusion refers to providing both individuals and businesses responsible and sustainable access to financial products.

Although there are some critics to the financial inclusion, yet it is being directly linked to reducing poverty and improving the wellbeing. There are different initiatives taken towards building a cost effective banking for the mass through technology to reduce the cost of banking operational expenses. Financial inclusion is all about offering a safe, secure and affordable financial services. Barriers to Financial Inclusion

* Lack of documentation

* Lack of trust in financial institutions

* Religion

* A family member having an account

* Having no need for financial services

The Islamic banking industry continues to grow exponentially, faster than their commercial banking peers and seems to be appealing to the industry with many of international banking giants tapping into this market. Performance and efficiency of Islamic banks during the global financial crisis 2008 was also better than the conventional banks counterparts; the mechanism Islamic Shariah provided better resilience to negative profitability and speculation, which impacted conventional banks.

This led to the exceptional adoption of Islamic banking principles to stabilize the financial systems and regain investors' confidence in the banking industry. Islamic banking can drive the economic growth similar...