This study aims to examine how Islamic finance development influences Islamic FinTech innovation and financial inclusion across 64 countries, while assessing the moderating role of internet penetration in these relationships.
The study draws on institutional theory and innovation diffusion theory and applies panel-corrected standard errors as the primary estimator, with feasible generalized least squares and two-stage least squares for robustness and endogeneity. The analysis tests five hypotheses using the Global Islamic Fintech Index, Islamic Finance Development Indicator and World Bank Global Findex data across the full sample and separately for Organization of Islamic Cooperation (OIC) and non-OIC countries.
Islamic finance development significantly fosters Islamic FinTech growth (β = 0.508, p < 0.01), with internet penetration as a critical enabler. Islamic FinTech increases account ownership (β = 0.268, p < 0.01) and digital transaction usage (β = 0.375, p < 0.01). However, the internet interaction effect is insignificant once governance is incorporated, suggesting threshold effects. Islamic finance development is negatively associated with financial inclusion (β = −0.088 and −0.172, p < 0.05), though this is concentrated in non-OIC countries and turns weakly positive in OIC contexts, potentially reflecting product complexity, market concentration and voluntary exclusion.
This study provides cross-country evidence linking Islamic finance development, FinTech innovation and financial inclusion. It shows that institutional maturity does not automatically translate into broader access to ethical financial services, challenging conventional assumptions and informing policy. It highlights the need for targeted interventions to translate institutional strength into inclusion through simplified Sharīʻah-compliant products, digital banking and grassroots Islamic FinTech.
