Experiments in Islamic microfinance
AbstractMicrofinance has been identified as an important tool in increasing the productivity of the poor and in aiding economic development. However, a large proportion of the poor are practicing Muslims, and are thus unable to take advantage of traditional microfinance contracts which involve the payment of interest. This paper describes and experimentally tests Islamic-compliant microfinance products in the context of information asymmetry and costly state verification. We find significantly higher compliance rates for the Islamic-compliant contracts (profit-sharing and joint venture) than for the traditional contract (interest-based). We believe that there is great promise for these types of loans in the microfinance context, for both Muslims and non-Muslims.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 95 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jebo
Islamic finance; Experimental economics; Microfinance; Information asymmetry; Interest; Profit sharing; Joint venture;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
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