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All Journal Muslim Business and Economic Review Journal of Islamic Economics and Business
Danial Muhammad Wirdyansyah
UIN Sunan Gunung Djati
Religion Economics, Econometrics & Finance Social Sciences

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Islamic Financial Development, Country Risk, and Human Development: Do They Shape Income Inequality in OIC Countries? Hapid Durohman; Fajar Andrian Sutisna; Danial Muhammad Wirdyansyah
Muslim Business and Economics Review Vol. 4 No. 2 (2025)
Publisher : Universitas Islam Internasional Indonesia

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Abstract

Income inequality remains a persistent development issue across member countries of the Organization of Islamic Cooperation (OIC), irrespective of their income level. The Islamic financial system, built upon Shariah principles of fairness, risk-sharing, and ethical finance, offers a viable alternative to conventional systems in addressing inequality. This study investigates the long-run effects of Islamic financial development, human development, and country risk on income inequality in OIC countries and empirically tests the Islamic Financial Kuznets Curve (IFKC) hypothesis. Using balanced panel data from 13 OIC member states over the period 2013–2023, the analysis applies Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators using STATA17. The results confirm that Islamic financial development significantly reduces income inequality and follows a non-linear (inverted U-shaped) relationship, validating the IFKC hypothesis. Human development exhibits a mixed effect: while DOLS and non-linear models suggest an equalizing impact, FMOLS results indicate that early gains may benefit elite groups disproportionately, reflecting institutional asymmetries. Country risk consistently exacerbates inequality across all models. Moreover, interaction effects reveal that institutional quality moderates the relationship between human development, country risk, and inequality. In some cases, even stronger institutions may fail to ensure equity when they lack inclusivity. These findings highlight the importance of aligning Islamic financial expansion with inclusive governance and social development policies. For OIC policymakers, achieving sustainable and inclusive growth requires synergy between financial deepening, human development, and institutional transformation Keywords: Islamic financial development, Income inequality, Human development, Country risk, Islamic Financial Kuznets Curve
Does Islamic Banking Performance Enhance Social Welfare? Evidence from Indonesia Hapid Durohman; Fajar Andrian Sutisna; Danial Muhammad Wirdyansyah; Chetrine Alya Rinaima
Journal of Islamic Economics and Business Vol. 4 No. 2 (2024): Journal of Islamic Economics and Business
Publisher : Fakultas Ekonomi dan Bisnis Islam

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.15575/jieb.v4i2.45727

Abstract

This study examines the influence of Islamic banking performance on social welfare in Indonesia, focusing on Shariah Non-compliance Risk (SNCR) and its relationship with the Capital Adequacy Ratio (CAR), unemployment, and Gross Domestic Product (GDP). SNCR occurs when Islamic banks fail to comply with Shariah principles, potentially leading to operational risks. Using panel data from 13 Islamic banks during 2017–2020, this research applies the Three-Stage Least Squares (3SLS) method to analyze the interaction between financial performance, macroeconomic indicators, and social welfare. Results show that higher CAR and unemployment tend to increase SNCR, while greater profitability, sufficient liquidity, and stable inflation help reduce it. Interestingly, although SNCR poses operational challenges, it has a positive impact on social welfare as reflected in GDP growth. This suggests that Islamic banks, despite Shariah compliance risks, still contribute to economic development. These findings emphasize the need for strong governance, effective risk control, and supportive economic policies. The study recommends that regulators enhance Shariah supervision and develop policies that strengthen financial stability while enabling Islamic banks to support national welfare goals. Overall, the research contributes to understanding how Islamic banking can balance financial soundness and social responsibility in the context of a growing Shariah-compliant financial system.
Co-Authors Chetrine Alya Rinaima Fajar Andrian Sutisna Hapid Durohman