Comparative analyze of the traditional and islamic banking impacts on poverty

Abstract

The paper examines comparatively the impact of the financial system development on the poverty rate in three countries, in Azerbaijan, Turkey, and Iran. The authors have calculated aggregately all four aspects of financial development by developing four new indices. The effects of these indicators on poverty, as well as the effects of the annual change of these indicators on the annual change in the poverty rate, were analyzed by the OLS method. The econometric analysis used to check the stationarity of the time series, the cointegration method, and the ADF test. The main result is that the financial system has a weak effect on poverty in Azerbaijan, where traditional banking is fully implemented, and in Turkey, where Islamic banking is partially implemented. However, in Iran, where only Islamic banking is practiced, the indices of the financial system's efficiency and stability have a strong negative impact on poverty.