Islamic finance and inclusive economic development: Challenges, opportunities, and policy implications
1 Department of Economics, Muslim University of Morogoro, Tanzania.
2 Department of Islamic Studies, Muslim University of Morogoro, Tanzania.
Review
Open Access Research Journal of Multidisciplinary Studies, 2026, 11(01), 047-055.
Article DOI: 10.53022/oarjms.2026.11.1.0017
Publication history:
Received on 27 December 2025; revised on 09 February 2026; accepted on 11 February 2026
Abstract:
Inclusive economic development remains a central policy objective for many developing and emerging economies, yet conventional financial systems have often failed to adequately address issues of inequality, financial exclusion, and poverty. Islamic finance, grounded in principles of risk-sharing, asset-backing, and social justice, offers an alternative framework that aligns closely with the goals of inclusive growth. This paper examines the role of Islamic finance in promoting inclusive economic development by analyzing its key instruments, institutional structures, and socio-economic objectives. Using a conceptual and analytical review of existing literature, the study explores how Islamic financial mechanisms such as zakat, waqf, sukuk, and profit-and-loss sharing contracts can enhance financial inclusion, support small and medium enterprises, and contribute to poverty alleviation. The paper further identifies major challenges facing the effective implementation of Islamic finance, including regulatory constraints, limited public awareness, weak institutional capacity, and governance issues. At the same time, it highlights emerging opportunities arising from financial technology, the Sustainable Development Goals, and policy reforms in both Muslim-majority and non-Muslim countries. The paper concludes by offering policy implications for governments, regulators, and Islamic financial institutions to strengthen the contribution of Islamic finance to inclusive and sustainable economic development.
Keywords:
Islamic Finance; Inclusive Economic Development; Financial Inclusion; Poverty Alleviation; Sustainable Development; Policy Implications
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