Religion, social desirability bias and financial inclusion: Evidence from a list experiment on Islamic (micro-)finance

In recent years, academic and policy research has placed increasing focus on the study of the attitudes of the Muslim poor towards Islamic and non-Islamic (micro-)finance to inform financial inclusion strategies. Survey questions are a common way to measure these attitudes and have been included into large-scale surveys such as the Global Findex. However, survey-based measures that ask about non-Islamic finance in an Islamic context may be affected by social desirability bias. In this paper, we propose a possible solution to this issue. We conduct the first list experiment designed to measure attitudes towards the usage of non-Islamic financial products and services, with 2,145 poor Muslims from Multan, Pakistan. Our list experiment uncovers that 37 percent of our sample use non-Islamic finance, almost twice as many as respond affirmatively to a similar direct survey question. Using our rich survey data on demographics, socio-economic factors and religiosity, we are further able to document substantial heterogeneity in the magnitudes of underreporting this usage in the direct survey question and in the usage of non-Islamic finance. We conclude by discussing the significance of our results in terms of (policy) implications and for the measurement of the demand for Islamic finance.