The Effect of Financial Inclusion on Economic Growth and Human Development: A Case Study of the Islamic World

Abstract

The purpose of this paper is to determine the effect of financial inclusion on economic growth and human development for Muslim countries. The importance of this topic lies in shedding the light on the crucial and vital role that financial inclusion plays in the development of human capital and thus leading to economic growth. An econometric model was developed to estimate this relationship empirically. The data was collected from the World Bank Group for 28 countries. The correlation coefficient was 0.79, indicating that there is a strong positive correlation between financial inclusion and human development. Nonetheless, the two regression models indicated that financial inclusion is one of the independent variables which affect both economic growth and human development; where a 1 percent increase in IFI will result in both a 0.83 percent increase in GDP per capita and a 0.09 percent increase in HDI. Therefore governments should try to create an environment that promotes an improvement in the quality of financial services which in turn will contribute to sustainable economic development.