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Is small the new big? Islamic banking for SMEs in Turkey

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  • Aysan, Ahmet F.
  • Disli, Mustafa
  • Ng, Adam
  • Ozturk, Huseyin

Abstract

While SMEs constitute the backbone of many economies, many SMEs have limited access to finance. Yet, banks in some countries are actively financing SMEs. This paper examines whether this is true in the case of Turkey, a G20 economy that has a significant SME sector. We study the determinants of banks' willingness to finance SMEs and banks' processing ability of SME financing portfolio in Turkey based on a unique quarterly small business panel data set of 40 commercial banks from 2006 to 2014. Employing pooled OLS and fixed-effects estimators, we find that Islamic banks (known as Participation banks in Turkey) are more inclined toward financing SMEs than conventional banks. We also find that the quality of Islamic banks' SME loan portfolio is comparable to that of conventional banks. The results are fairly robust to different bank ownership forms (state owned, private, and Islamic banks) and alternative model specifications. Our findings provide further support to the notion of “small is the new big” in that banking for SMEs can be a viable venture.

Suggested Citation

  • Aysan, Ahmet F. & Disli, Mustafa & Ng, Adam & Ozturk, Huseyin, 2016. "Is small the new big? Islamic banking for SMEs in Turkey," Economic Modelling, Elsevier, vol. 54(C), pages 187-194.
  • Handle: RePEc:eee:ecmode:v:54:y:2016:i:c:p:187-194
    DOI: 10.1016/j.econmod.2015.12.031
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    References listed on IDEAS

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    1. repec:eco:journ1:2017-04-37 is not listed on IDEAS
    2. repec:eee:jcecon:v:46:y:2018:i:1:p:1-19 is not listed on IDEAS
    3. Imam, Patrick & Kpodar, Kangni, 2016. "Islamic banking: Good for growth?," Economic Modelling, Elsevier, vol. 59(C), pages 387-401.
    4. repec:eee:finsta:v:34:y:2018:i:c:p:12-43 is not listed on IDEAS
    5. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Narayan, Seema & Bannigidadmath, Deepa, 2017. "Is there a financial news risk premium in Islamic stocks?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 158-170.
    6. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk, 2017. "Bank Lending Channel In A Dual Banking System:Why Are Islamic Banks So Responsive?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/938, Ghent University, Faculty of Economics and Business Administration.
    7. repec:eee:ecmode:v:71:y:2018:i:c:p:121-133 is not listed on IDEAS
    8. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach, 2017. "Momentum strategies for Islamic stocks," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 96-112.
    9. Aysan, Ahmet F. & Disli, Mustafa & Duygun, Meryem & Ozturk, Huseyin, 2018. "Religiosity versus rationality: Depositor behavior in Islamic and conventional banks," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 1-19.

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    Keywords

    Islamic banks; Small business lending;

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