Financial inclusion and sustainable development of banks: the place of organization of Islamic cooperation (OIC) in emerging markets

Purpose - This study examines the impact of financial inclusion on the corporate sustainability of banks in both Organization of Islamic Cooperation (OIC) and non-OIC emerging economies, considering the COVID-19 pandemic. Design/methodology/approach - The research utilizes data from 3,159 bank-years from 2007 to 2021 across 33 emerging markets. Findings - Empirical findings indicate that firms operating in higher financial inclusion developing countries tend to exhibit higher levels of sustainable development. This positive relationship has become even more pronounced during the COVID-19 pandemic, suggesting the importance of financial inclusion in fostering corporate sustainability, especially in times of economic challenges. Interestingly, while the positive correlation between financial inclusion and sustainable development remains consistent across both OIC and non-OIC countries, firms in OIC countries do not show significant changes during the pandemic. Practical implications - This observation suggests that the pandemic’s impact on corporate sustainability may vary between the two groups of countries. This study highlights the significance of financial inclusion in promoting corporate sustainability in developing economies. In times of recessions when accessing finance becomes expensive, policymakers in OIC countries should identify firms that adhere to Islamic principles, such as those sensitive to interest rates, and provide them with targeted support. This assistance can enable these companies to compete effectively and achieve their financial sustainability objectives. Originality/value - There has been no attempt to investigate the effect of financial inclusion and the pandemic on the sustainable development of banks in developing countries.