Behavioral Economics and its Relationship with Financial Inclusion from Islamic Perspectives

Abstract

Objectives: This study aims to identify the concept of behavioral economics, which was not widely addressed. The study also aims to address the critiques which targeted behavioral economy and highlight the differences which set it apart from traditional economy.

Methods: The research used the descriptive approach via investigating the relevant ideas and concepts and analyzing them from an economic perspective. The study also relied on presenting the social and psychological concepts upon which the hypotheses of behavioral economics rest in general in an endeavor to consolidate the relationship between behavioral economics and financial inclusion from an Islamic perspective.

Results: The study showed that Islamic rules and regulations enable the application of behavioral economics in Islamic financial inclusion by several pillars that encourage and motivate the clients to adopt ideal decisions because the nudge theory showed that client’s behavior can be influenced by small suggestions and positive reinforcement. The most prominent critique which behavioral economics faced resided in the possibility of futility to use small nudges in public policies with the same effectiveness as traditional economics tool such as raising taxes to control irrational behavior.

Conclusions: The study recommended that Islamic banks and financial institutions should establish entities for behavioral nudge to encourage behavioral economics methods in commensurate with Islamic Sharia rules and provisions and benefiting from previous experiences in applying behavioral economy by adopting the uniqueness of Islamic societies for that application and benefiting from it.