Why Do Large Firms Go For Islamic Loans?
AbstractThis paper examines the motivations for large firms to choose an Islamic loan over a conventional loan and the recent expansion of Islamic finance activities. We employ a dataset of Islamic and conventional syndicated loans from countries in the Middle East and Southeast Asia for the period 2001-2009, testing determinants for the choice of an Islamic loan at the facility, firm, and country level. From the lenders standpoint, loan characteristics apparently do not influence the decision to offer Islamic loans, nor are they rationed to borrowers in terms of maturity or amount. Moreover, firms taking Islamic loans do not appear to differ in terms of default risk from firms taking conventional loans. We identify three country-level determinants as potential driving forces expanding the preference for Islamic loans. The strongest determinant is religiosity, i.e. the share of Muslim population in a country, but the quality of institutions and level of financial development also play substantial roles.
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Bibliographic InfoPaper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2012-05.
Date of creation: 2012
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Islamic banks; loans.;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-17 (All new papers)
- NEP-ARA-2012-04-17 (MENA - Middle East & North Africa)
- NEP-CFN-2012-04-17 (Corporate Finance)
- NEP-CWA-2012-04-17 (Central & Western Asia)
- NEP-MFD-2012-04-17 (Microfinance)
- NEP-SEA-2012-04-17 (South East Asia)
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