Experiments in Islamic microfinance
Microfinance 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- El-Gamal, M.A., 1997. "Can Islamic Banking Survive? A Micro-Evolutionary Perspective," Working papers 9705, Wisconsin Madison - Social Systems.
- Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-66, September.
- Ernst Fehr & Armin Falk, .
"Psychological Foundations of Incentives,"
IEW - Working Papers
095, Institute for Empirical Research in Economics - University of Zurich.
- Ernst Fehr & Armin Falk, 2002. "Psychological Foundations of Incentives," CESifo Working Paper Series 714, CESifo Group Munich.
- Ernst Fehr, 2003. "Psychological Foundations of Incentives," Microeconomics 0305010, EconWPA.
- Falk, Armin & Fehr, Ernst, 2002. "Psychological Foundations of Incentives," CEPR Discussion Papers 3185, C.E.P.R. Discussion Papers.
- Fehr, Ernst & Falk, Armin, 2002. "Psychological Foundations of Incentives," IZA Discussion Papers 507, Institute for the Study of Labor (IZA).
- Robert Townsend, 1979.
"Optimal contracts and competitive markets with costly state verification,"
45, Federal Reserve Bank of Minneapolis.
- Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
- Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012.
"Do interest rates matter? Credit demand in the Dhaka slums,"
Journal of Development Economics,
Elsevier, vol. 97(2), pages 437-449.
- Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2005. "Do interest rates matter? credit demand in the Dhaka Slums," MPRA Paper 33146, University Library of Munich, Germany.
- Klaus Abbink & Bernd Irlenbusch & Elke Renner, 2006. "Interest Rates In Group Lending: A Behavioural Investigation," Pacific Economic Review, Wiley Blackwell, vol. 11(2), pages 185-199, 06.
- Karlan, Dean S. & Zinman, Jonathan, 2007.
"Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment,"
CEPR Discussion Papers
6182, C.E.P.R. Discussion Papers.
- Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
- Dean Karlan & Jonathan Zinman, 2004. "Observing unobservables: Identifying information asymmetries with a consumer credit field experiment," Natural Field Experiments 00283, The Field Experiments Website.
- Dean Karlan & Jonathan Zinman, 2005. "Observing unobservables: identifying information asymmetries with a consumer-credit field experiment," Proceedings 961, Federal Reserve Bank of Chicago.
- Hoff, Karla & Stiglitz, Joseph E, 1990. "Imperfect Information and Rural Credit Markets--Puzzles and Policy Perspectives," World Bank Economic Review, World Bank Group, vol. 4(3), pages 235-50, September.
- Ross Levine, 2004.
"Finance and Growth: Theory and Evidence,"
NBER Working Papers
10766, National Bureau of Economic Research, Inc.
- Timothy N. Cason & Lata Gangadharan & Pushkar Maitra, 2008.
"Moral Hazard and Peer Monitoring in a Laboratory Microfinance Experiment,"
Purdue University Economics Working Papers
1208, Purdue University, Department of Economics.
- Cason, Timothy N. & Gangadharan, Lata & Maitra, Pushkar, 2012. "Moral hazard and peer monitoring in a laboratory microfinance experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 192-209.
- Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
- repec:cup:cbooks:9780521867580 is not listed on IDEAS
- repec:cup:cbooks:9780521687157 is not listed on IDEAS
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Ferraro, Paul J. & Rondeau, Daniel & Poe, Gregory L., 2000.
"Detecting Other-Regarding Behavior with Virtual Players,"
179537, Cornell University, Department of Applied Economics and Management.
- Ferraro, Paul J. & Rondeau, Daniel & Poe, Gregory L., 2003. "Detecting other-regarding behavior with virtual players," Journal of Economic Behavior & Organization, Elsevier, vol. 51(1), pages 99-109, May.
- George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
- Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, vol. 4(3), pages 251-69, September.
- Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, June.
- Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:95:y:2013:i:c:p:252-269. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.