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.