Equitable Islamic Finance

Despite the exemplary growth of the Islamic finance over the past decades, already crossing USD 1 trillion mark, neither have the poor segments of the societies been duly attended to nor have the common masses been offered adequate chance to benefit from Islamic financial services. The corporate sector has virtually become the major beneficiary of this development since the Islamic financial institutions have largely ignored the objective of value orientation pertaining to Islamic finance. The Islamic Development Bank (IDB) has initiated a number of programs focusing on development of micro and small enterprises in member countries, the latest being Youth Employment Support (YES) Program to address the unemployment issues of educated youth by developing entrepreneurial capacity and providing financial resources through Islamic financial instruments. However, to reach the appropriate scale, the effort and will of governments is required. The IDB and Organization of Islamic Cooperation (OIC) have also underscored the crucial situation and held a seminar on ‗Islamic Microfinance for Poverty Alleviation in OIC Member Countries‘ in May 2016 in Indonesia, and noted that the global economy continues to face the perennial problems of poverty, persistent youth unemployment, and excessive inequalities of income and wealth. Therefore, the effort should be aimed to link both inclusive and sustainable socio-economic development. This is in line with the Islamic Development Bank‘s experience in this area, which shows that financial inclusion is important for growth and reducing inequality and poverty across the member countries. IDB has further noted that although the Islamic finance industry has made significant contributions in all the areas relating to financial viability, profitability and competitiveness, there are concerns that a segment of the Islamic finance industry, namely Islamic banks have not been able to reach and bring vast segments of the population, especially the underprivileged sections of the society, into the fold of basic banking services. In many developing countries, the majority of the population lives in rural areas while financial institutions concentrate in urban centers. Consequently, this segment of the population remains underserved in terms of access to financial services. This situation requires the governments and the societies to play a catalytic role by supporting an inclusive financial sector and country-level policy framework should be developed with a clear vision to face the challenge of devising well thought out action plans. In the context of sustainability, it is widely recognized that the donor-dependent, piecemeal, and un-sustainable interventions cannot provide the solution unless a programmed strategy for financial inclusion is developed within the overall scenario.