Download citation:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:

---

This study re-examines the relationship between Islamic financial development and income inequality by shifting focus from asset scale to substantive adherence to Islamic principles. While existing literature relies on conventional quantitative metrics and yields inconclusive results, we argue that distributive outcomes depend on the depth of risk-sharing, redistributive embeddedness, and Shari’ah governance. To test this, we construct a novel latent variable—"Real-World Islamicness"—via Confirmatory Factor Analysis using PLS ratios, Zakat intensity, and governance scores for 33 OIC countries (2005–2021). This index is then incorporated into a System GMM dynamic panel model to address endogeneity and persistence. Results show that the latent measure exerts a significant negative effect on the Gini coefficient, whereas conventional asset-based measures do not. This effect is contingent on institutional quality: amplified under strong governance, negligible under weak institutions. Quantified policy simulations indicate that raising PLS penetration to 20% reduces Gini by 1.3 points, and formalizing Zakat to 0.5% of GDP reduces it by 1.6 points. The findings demonstrate that authentic Islamic financial development—not mere compliance—can meaningfully reduce inequality when accompanied by institutional reform.

Keywords: Islamic Finance, Income Inequality, Gini Coefficient, Latent Variable, Dynamic Panel Data, OIC Countries.

     

Add your comments about this article : Your username or Email:

---