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Islamic banking stability amidst the COVID-19 pandemic: the role of digital financial inclusion

Author

Listed:
  • Hasanul Banna
  • M. Kabir Hassan
  • Rubi Ahmad
  • Md Rabiul Alam

Abstract

Purpose - This paper aims to explore the role of digital financial inclusion (DFI) in stabilizing the Islamic banking sector amidst the current COVID-19 pandemic. Design/methodology/approach - This study has used the Panel-Corrected Standard Errors (PCSE), Two-Stage Panel Least Squares-Instrumental Variables (2SLS-IV) and Two-Step System Generalized Method of Moments (2SGMM) dynamic panel estimation method to investigate the DFI-Islamic banking stability nexus using an unbalanced panel data of 65 Islamic banks from six countries over the period 2011–2020. Findings - The result suggests that greater implementation of DFI promotes Islamic banking stability, which reduces the default risk of the banks in the studied region. Consequently, incorporating DFI into the Islamic banking sector encourages inclusive economic growth that can keep the financial sector sustainable even in a crisis period like the current COVID-19 pandemic. Originality/value - Unlike previous studies, the authors have focused mainly on DFI and the Islamic banking sector. This is one of the first to explore how DFI contribute to the stability and productivity of the Islamic banking sector during the pandemic. Also, this study provides fresh evidence on how the supply and demand side of DFI impact Islamic banking stability.

Suggested Citation

  • Hasanul Banna & M. Kabir Hassan & Rubi Ahmad & Md Rabiul Alam, 2021. "Islamic banking stability amidst the COVID-19 pandemic: the role of digital financial inclusion," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 15(2), pages 310-330, August.
    • Handle: RePEc:eme:imefmp:imefm-08-2020-0389
    DOI: 10.1108/IMEFM-08-2020-0389
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    Citations

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    Cited by:

    1. Najam, Hina & Abbas, Jawad & Álvarez-Otero, Susana & Dogan, Eyup & Sial, Muhammad Safdar, 2022. "Towards green recovery: Can banks achieve financial sustainability through income diversification in ASEAN countries?," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 522-533.

    More about this item

    Keywords

    Digital financial inclusion; FinTech; Islamic banks; Banking stability; COVID-19; E44; F65; G21; G28;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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