The role of Islamic finance for global financial inclusivity

Spokesperson: Shoaib Bux, Co-founder of Autarky Sukuk


Calls to end financial exclusion are growing louder.

The global economy thrives on participation at all levels, and so the financial services sector, encompassing banking, payments, and insurance, has embraced inclusivity as a shared mission, to enable people of every age, ethnicity, and socio-economic background to engage.

There have been many consumer tech solutions put forward to achieve this goal, but one area that has shown outstanding results in addressing financial exclusion is Islamic finance.

The Shar’iah system not only acts as an important alternative for those restricted from using Western banking because of their religious beliefs, but it also achieves broader inclusivity by providing everyone access to products that prioritise social responsibility and the environment.


The rise of Islamic finance

In its modern form, Shariah-compliant finance is seeing a rapid surge in interest. Global Islamic banking assets under management skyrocketed by over a trillion dollars between 2016 and 2021, climbing from $1.7tn to $2.8tn, and projections indicate this will increase to $4tn by 2026[1].

These figures indicate the incredible traction that Islamic finance has gained in recent years, and testament to its inclusivity, four in five (81%) practising Muslims currently use it or would consider using it in the future[2], with 85% of existing customers saying it has exceeded their expectations[3]. The remarkable growth of Islamic finance can be attributed to its roots in Shariah law and the ethical principles that govern all transactions and commercial activity under the faith.

Islamic finance requires transparency, that both risk and profit be shared, and socially responsible investment choices. These ethical principles manifest in diverse practical ways that ensure that no one faces discrimination based on income or risk tolerance.

Here are four ways that Islamic finance ensures no one gets left behind.


Beyond income barriers

Islamic finance aims to make investment more accessible and provide opportunities to people of all economic backgrounds by lowering barriers to entry.

Marubaha, for example, is a product that offers a clear path to home ownership. It operates through a cost-plus-profit mechanism, marking up homes to an agreed price and then allowing buyers to pay in manageable instalments. The absence of interest also aligns with Islamic religious values.

Sukuk, one of the most popular concepts, also embodies this duality of innovation and faith. Sukuk allows individuals to invest in companies’ underlying assets and have a claim on the value they create, rather than investing in common stock, which represents equity in public companies.


Wealth redistribution

Islamic finance employs several other unique tools to reduce economic disparities and alleviate poverty within communities. Zakat, for example, is an alms tax that Muslims are obligated to pay to help those who are less fortunate. It is usually 2.5% of assets owned above a threshold[4].

Waqf, a philanthropic term, entails the donations of assets into public endowments. These endowments serve as a vital source of funding for mosques, schools, and hospitals.

Qard-al-Hassan compliments Zakat, Waqf and Sadaqat (voluntary charity) as a form of loan that again, is Shari’ah-compliant by not charging interest. These loans typically represent “benevolent lending” to those facing hardship.


Investment confidence

The bedrock of any financial system is trust and the confidence people have in it, and this is especially true for the distinctly altruistic Islamic financial system – it must have strong foundations.

To maintain confidence, Islamic finance upholds strict rules to steer clear of ‘gharar’ or ‘riba’ contracts. These refer to business agreements where there is deemed to be excessive risk or uncertainty. The avoidance of gharar is instructed by many Quranic teachings, and allows the Islamic economy to benefit from stability, with fewer disputes taking place and less overall disruption.

As a rule, the impact of financial crises will also be less harsh on those who operate in a financial system that is socially responsible and based on religious principles, where risk is shared equitably among stakeholders and financial education and awareness is taken very seriously.

The principles of Shariah law shield the most vulnerable in times of crisis, giving confidence to marginalised groups who may have never invested before, and promoting financial inclusivity.


Autarky Sukuk and financial inclusion

Autarky is a Shariah compliant organisation dedicated to making sure the financial world leaves no one behind. Through its charitable giving programme, Autarky Sukuk funds initiatives that champion fairer wealth distribution, equitable standards and genuine financial inclusivity.

In an increasingly interconnected world, everyone should feel part of the global economy. Islamic finance has shown remarkable commitment to addressing financial exclusion, and offers a promising path forwards.

[1] The growing global appeal of Islamic finance, BNY Mellon.

[2] 81% of practicing Muslims currently use or would consider using Islamic finance in the future, Al Rayan Bank.

[3] Islamic finance Consumer Report 2019, Gatehouse Bank.

[4] Islamic Relief Worldwide – Zakat


Explore more