Islamic Finance and SDG 10: Evidence from Selected OIC Countries

Abstract

Early writings in Islamic economics depicted a grand and, some would say, utopian image of the type of societal development that would result from implementing Islamic social and economic theory. However, despite the emergence of Islamic economics in a modern sense in the 1960s, we now find that the only manifestation that represents an Islamic alternative to mainstream neo-classical development is the Islamic banking and finance industry. However, the developments in the Islamic financial services industry indicate that it has converged toward conventional finance, which, arguably, contributes to the financialization of economy, as a result. Consequently, it has failed to fulfil the institutional and policy aspirations of Islamic economic system. This statement is investigated with an empirical study. We find evidence that initially Islamic banks played a positive role in reduction of income inequality, however, as Islamic finance has become a real force in the market place, financialization of the industry might have contributed to income inequality, thereby Islamic finance fails to meaningfully contribute to the realization of SDG 10, namely reducing inequalities.