The role of Islamic insurance in financial inclusion index in Malaysia: A conceptual framework.

The inclusion of the greatest number of people into the formal financial system is one of the fundamental motivations behind Islamic financial principles. Following the Global Financial Crisis, Islamic finance was able to overcome its financial losses and maintain its stability. Islamic insurance (Takaful) has served its communal responsibility well for enabling society during the crisis through postponement of premium contributions and continuous protection. This element translates into Islamic insurance integrating social finance instruments. However, the existing financial inclusion index is mainly built based on the banking perspective. The paper aspires to model the role of Islamic insurance in the Financial Inclusion Index in Malaysia. The proposed model to investigate this issue is by using a two-stages Principal Component Analysis (PCA). The benefit of this analysis includes reducing the dimensionality of the data, thus enabling us to better generalise the interpretation of the financial inclusion index. The constructed Takaful products-integrated financial inclusion index would allow policymakers to better assess the state of financial inclusion in Malaysia, thereby formulating more targeted and effective policies in the effort to enhance financial inclusiveness in Malaysia. The society, of which more than half are practicing Islam and especially those in the rural areas, would benefit from greater financial well-being when the emphasis is given to Takaful products to give them access to the financial system. [ABSTRACT FROM AUTHOR]