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Financing from Islamic microfinance institutions: evidence from Indonesia

Author

Listed:
  • Bayu Arie Fianto
  • Christopher Gan
  • Baiding Hu

Abstract

Purpose - The purpose of this paper is to investigate factors that determine rural households’ access to finance provided by Islamic microfinance institutions (MFIs) in Indonesia. Design/methodology/approach - A two-year panel data set with logistic regression is used to identify the determinants of access to finance by rural households. The study sample comprises of 289 Islamic MFIs’ clients and 140 non-clients from East Java, Indonesia. The clients consist of 111 rural households with profit and loss sharing (PLS) schemes, 162 clients with non-profit and loss sharing (non-PLS) schemes and 16 clients with both schemes. Findings - The empirical results show that age, gender and income influence rural households to access finance provided by Islamic MFIs. The results show an increase in age and income increase the respondents’ likelihood to access finance. Further, male respondents are more likely to access finance from Islamic MFIs than females. Research limitations/implications - The empirical analysis is limited to data obtained from East Java province in Indonesia, and other provinces may show different results. However, this study is among the few studies that investigate access to finance from Islamic MFIs based on PLS and non-PLS schemes. Originality/value - The novelty of this study lies in the unique financing accessibility between PLS and non-PLS schemes in Islamic MFIs. This study will be an important addition to the emerging literature on Islamic microfinance.

Suggested Citation

  • Bayu Arie Fianto & Christopher Gan & Baiding Hu, 2019. "Financing from Islamic microfinance institutions: evidence from Indonesia," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 79(5), pages 633-645, September.
    • Handle: RePEc:eme:afrpps:afr-10-2018-0091
    DOI: 10.1108/AFR-10-2018-0091
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    Citations

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    Cited by:

    1. Wittawat Hemtanon & Christopher Gan, 2020. "Microfinance Participation in Thailand," JRFM, MDPI, vol. 13(6), pages 1-27, June.
    2. Hassan, M. Kabir & Alshater, Muneer M. & Hasan, Rashedul & Bhuiyan, Abul Bashar, 2021. "Islamic microfinance: A bibliometric review," Global Finance Journal, Elsevier, vol. 49(C).

    More about this item

    Keywords

    Accessibility; Islamic microfinance institution; Rural household; R20; O17; G23;
    All these keywords.

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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