ISLAMIC BANKING AS AN INSTRUMENT FOR REDUCING SOCIAL INEQUALITY: THE CASE OF BOSNIA AND HERZEGOVINA

using Bosnia and Herzegovina as a case study. The Balkan region has increasingly been 
targeted by investments from the GCC region, including Bosnia Bank International (BBI) as 
one of those investments, recognized as the only Islamic bank in the region. Islamic banking 
is a form of moral banking, aimed at profit maximization without compromising ethical 
standards. These ethical norms are critical in shaping business operations, wherein Islamic 
banks are expected not only to be profitable but to positively contribute to societal welfare, 
particularly in addressing disparities between the rich and the poor. By adhering to the 
principles of socially responsible banking, grounded in justice, solidarity, and the prohibition 
of harmful economic activities, Islamic banking offers an alternative financial model with 
considerable potential for reducing social inequalities. This paper analyzes the role of BBI, its 
implementation of Islamic financial instruments, and the impact of various projects that have 
contributed to reducing social disparities in Bosnia and Herzegovina. Islamic financial 
instruments, being partnership-based, are hypothesized to foster greater equity in relationships 
between banks and clients. Projects such as the Sarajevo Business Forum, Sarajevo Halal Fair, 
credit lines with Cantonal and Municipal authorities, zero-margin financial lines for clients, 
and student scholarship programs organized by the Bank demonstrate BBI’s substantial 
engagement in social responsibility, surpassing the efforts of conventional banks. This 
suggests that BBI’s operations reflect a deeper commitment to addressing social vulnerability 
and promoting social justice compared to traditional banks. The study also explores the 
challenges BBI faces and considers the potential for further development of Islamic financial 
institutions within the region. The findings suggest that Islamic banking, through institutions 
such as BBI, can offer sustainable solutions to both economic and social challenges, fostering 
a more equitable distribution of resources and promoting social inclusion. Islamic banking not 
only operates through financial instruments but also contributes to community welfare through 
non-banking activities that have a measurable impact on reducing social inequalities. 
Furthermore, the study examines how Islamic banks like BBI can serve as catalysts for broader 
economic change, including promoting entrepreneurship and job creation. Ultimately, this 
research emphasizes the potential of these models to inspire the development of other socially 
responsible financial institutions across the wider Balkan region.