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Security design, incentives, and Islamic microfinance: Cross country evidence

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  • Fan, Yaoyao
  • John, Kose
  • Liu, Frank Hong
  • Tamanni, Luqyan

Abstract

We provide cross country evidence from microfinance institutions (MFIs) that are Sharia-compliant and their comparisons with non-Sharia-compliant MFIs. We find that, compared with non-Sharia-compliant conventional MFIs, Sharia-compliant Islamic MFIs have less credit risk but are less profitable and financially sustainable, have better poverty outreach, and are less likely to ‘mission drift’. Our results highlight the differences in religiosity and security design between these two institutions. Our study also helps practitioners and policy makers improve the understanding of the difference between conventional and Islamic MFIs.

Suggested Citation

  • Fan, Yaoyao & John, Kose & Liu, Frank Hong & Tamanni, Luqyan, 2019. "Security design, incentives, and Islamic microfinance: Cross country evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 62(C), pages 264-280.
    • Handle: RePEc:eee:intfin:v:62:y:2019:i:c:p:264-280
    DOI: 10.1016/j.intfin.2019.08.002
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    Cited by:

    1. Ahmad, Syedah & Lensink, Robert & Mueller, Annika, 2020. "The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance," World Development, Elsevier, vol. 136(C).
    2. Sunil Sangwan & Narayan Chandra Nayak & Sweta Sen & Vikas Sangwan, 2023. "Does firm size affect client targeting? An investigation over the clients of the Indian Microfinance Institutions," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.
    3. Mohamed, Toka S. & Elgammal, Mohammed M., 2023. "Credit risk in Islamic microfinance institutions: The role of women, groups, and rural borrowers," Emerging Markets Review, Elsevier, vol. 54(C).
    4. Federica Lanzara, 2023. "Islamic Finance as Social Finance: A Bibliometric Analysis from 2000 to 2021," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(9), pages 107-107, February.
    5. Kok, Seng Kiong & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "The trade-off between knowledge accumulation and independence: The case of the Shariah supervisory board within the Shariah governance and firm performance nexus," Research in International Business and Finance, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Microfinance institutions; Sharia-compliant product; Islamic; Security design; Religiosity; Cross country;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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