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Purpose This study aims to analyze how the COVID-19 pandemic has altered the role of the Islamic finance (IF) sector in the economy and how technological developments in IF can enhance its functioning and contribution to sustainable development in the post-pandemic era. It examines the impact of IF on traditional financial inclusion pre- and post-COVID-19. Furthermore, in response to the acceleration of financial technologies following the pandemic, the study explores the impact of Islamic FinTech on Digital Financial Inclusion (DFI) and, consequently, on sustainable development (SD). Design/methodology/approach A cross-sectional multiple regression analysis is conducted to examine the impact of traditional IF on financial inclusion pre- and post-COVID-19 in the years 2017 and 2021 for 64 countries. Moreover, a structural equation model (SEM) is used by using cross-section data for 64 countries in the year 2021 to capture the impact of Islamic FinTech on SD through DFI as an intermediator. Findings IF has a positive and significant impact on traditional financial inclusion pre-COVID-19. On the contrary, it has insignificant impact post to the pandemic due to the slow-down of the sector development. Alternatively, Islamic FinTech has a positive and significant impact on DFI and, hence, on SD. These results indicate that the development of the IF sector is negatively affected post to the pandemic. However, it still has an opportunity to shift to a more resilient sector by introducing financial innovations that allow it to cope with the global current financial technological changes. Research limitations/implications This research has some limitations that could be addressed in future studies. First, the empirical analysis is restricted to cross-sectional analyses in years 2017 and 2021 to compare the role of IF pre- and post the pandemic. These years are chosen based on data from the Global Financial Development Database, which is collected by the World Bank and released every three years, with the latest update in 2021. Second, this study uses one measure for each of traditional and DFI. This can be further investigated by using multiple indicators or constructing an index for each variable. Practical implications Islamic FinTech presents several practical implications, particularly in its ability to provide access to financial services while adhering to Shariah principles. First, it fosters a more inclusive financial ecosystem by offering cost-effective, ethical and transparent financial products tailored to diverse populations that can significantly contribute to financial inclusion, especially in Muslim-majority countries. Second, it promotes gender equality by improving access to financial resources and services, which enhances financial inclusion and subsequently drives the expansion and development of the IF sector and hence supports SDGs. Third, Islamic FinTech supports the growth of SMEs by providing Shariah-compliant financing alternatives. Originality/value This paper’s originality lies in its comparison of the role that the development of the IF sector plays in financial inclusion pre- and post-COVID-19, using empirical regression analysis, which contrasts with other studies that use theoretical analysis. Furthermore, the study bridges a gap in the IF literature by extending the analysis to integrate digital technologies into the IF sector, using the Global Islamic FinTech index (GIFT) to capture various aspects of Islamic FinTech development by conducting an SEM to examine the impact of Islamic FinTech on SD, with DFI serving as an intermediator.
Mohamed et al. (Fri,) studied this question.