Trade-off between financial inclusion and Islamic bank stability in five GCC countries: the moderating effect of CSR

This research aims to understand the nonlinear relationship between financial inclusion and Islamic banking stability, as well as the moderating effect of corporate social responsibility on this relationship. To do so, we use a sample of 27 Islamic banks operating in the GCC countries (Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) over the period 2012–2020. We used the two-step system generalized method of moments (SGMM). This method accounts for the dynamic nature of the dependent variable and potential endogeneity. The results indicate that there is an inverted U-shaped relationship between financial inclusion and Islamic banking stability. Moreover, they show that CSR moderates the relationship between financial inclusion and Islamic banking stability. It is imperative that policymakers and the leaders of Islamic banking institutions adopt a thoughtful financial inclusion strategy that carefully balances its advantages, such as promoting equity and financial justice, reducing funding costs and improving financial stability, with its potential disadvantages, such as the risks associated with excessive leverage. Moreover, the trade-off between financial inclusion and CSR is drastic to avoid default risks and optimize the effect of financial inclusion on Islamic banking stability.