Foreign Financial Inflows, Islamic Banking, and Poverty Alleviation in Sub-Saharan African Countries

Abstract

The study examines the impact of foreign financial inflows on poverty alleviation in sub-Saharan Africa, by considering Islamic banking as a sustainable alternative, using panel ARDL estimations over 31 years (1991–2021), and focusing on ten African countries. The study proxies foreign financial inflows with official development assistance (ODA), external debts, diaspora remittances, and Islamic finance instruments. Household consumption serves as a proxy for poverty alleviation. The results reveal that ODA (p = 0.0006, coefficient = 0.202311) and diaspora remittances (p = 0.0000, coefficient = 0.398084) positively impact poverty alleviation, while external debts (p = 0.2658, coefficient =-0.036205) have a detrimental effect. Due to its interest- free and risk-sharing principles, Islamic banking offers a sustainable alternative to conventional financial systems, reducing poverty without fostering economic dependency.