DOES FINANCIAL INCLUSION INTERACT WITH ISLAMIC BANKING INDUSTRY? EVIDENCE FROM SAUDI ARABIA

Abstract

The study aimed to explore interplay between financial inclusion and Islamic banking in Saudi Arabia. There were dimensions of financial inclusion matter to three challenges of Islamic banking such as trust, product development and competition. The empirical methodology was based on questionnaire distributed to adult male and female Saudi respondents. The respondents were male and female Saudi officers and customers of Islamic financial institutions. The questionnaire was distributed to the respondents through direct contact or online used Google. The endogenous variables included trust (TRUST), Islamic financial products development (PRODEV) and competitive posture (COMPOST). Meanwhile two indicators of financial inclusion included usage (USAGE) and quality (QUALITY). The statistical tools included correlation, partial correlation analysis, principal constructs analysis and regression analysis. The result showed there was limited impact of financial inclusion on Islamic banking in Saudi Arabia. However, most striking fact was clear dependence between quality impact of three aspects of Islamic banking. This result indicated that Saudi Islamic banks had improved product and services quality as Islamic banks offered their clients would trust more. Islamic banks will be endowed with higher product development ability and can strengthen their competitive power.