IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v52y2018icp163-172.html
   My bibliography  Save this article

Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia

Author

Listed:
  • Fianto, Bayu Arie
  • Gan, Christopher
  • Hu, Baiding
  • Roudaki, Jamal

Abstract

This paper investigates the impact of Islamic microfinance on rural households' welfare in Indonesia. Using a survey questionnaire, this study explores two group of financing in Islamic microfinance, equity and debt-based financing. A two-year panel dataset and a double difference-in-difference approach are used to examine the impact of the two Islamic microfinance groups on rural household in Indonesia. The study also evaluates shari'a compliance based on the national shari'a board of Indonesia. The study results indicate that both financing groups exhibit a positive and significant impact on rural households' income, but equity financing performed better than debt-based financing. Moreover, the shari'a compliance evaluation indicates that clients received financing that is comparable with the national shari'a board of Indonesia.

Suggested Citation

  • Fianto, Bayu Arie & Gan, Christopher & Hu, Baiding & Roudaki, Jamal, 2018. "Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 163-172.
  • Handle: RePEc:eee:pacfin:v:52:y:2018:i:c:p:163-172
    DOI: 10.1016/j.pacfin.2017.09.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X17304602
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.pacfin.2017.09.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Toshio Kondo & Aniceto Orbeta Jr. & Clarence Dingcong & Christine Infantado, 2008. "Impact of Microfinance on Rural Households in the Philippines," Development Economics Working Papers 22639, East Asian Bureau of Economic Research.
    2. Myoung-jae Lee, 2016. "Generalized Difference in Differences With Panel Data and Least Squares Estimator," Sociological Methods & Research, , vol. 45(1), pages 134-157, February.
    3. Annette Bergemann & Bernd Fitzenberger & Stefan Speckesser, 2009. "Evaluating the dynamic employment effects of training programs in East Germany using conditional difference-in-differences," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(5), pages 797-823.
    4. Seibel, Hans Dieter, 2005. "What Matters in Rural and Microfinance," Working Papers 2005,1, University of Cologne, Development Research Center.
    5. Paul S. Mills & John R. Presley, 1999. "Islamic Finance: Theory and Practice," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-28847-8, September.
    6. Abdul-Rahman, Aisyah & Abdul Latif, Radziah & Muda, Ruhaini & Abdullah, Muhammad Azmi, 2014. "Failure and potential of profit-loss sharing contracts: A perspective of New Institutional, Economic (NIE) Theory," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 136-151.
    7. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
    8. Alberto Abadie, 2005. "Semiparametric Difference-in-Differences Estimators," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 1-19.
    9. Geoff Perry & Tim Maloney, 2007. "Evaluating active labour market programmes in New Zealand," International Journal of Manpower, Emerald Group Publishing Limited, vol. 28(1), pages 7-29, April.
    10. Mehmet Asutay, 2007. "Conceptualisation Of The Second Best Solution In Overcoming The Social Failure Of Islamic Banking And Finance: Examining The Overpowering Of Homoislamicus By Homoeconomicus," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 15(2), pages 167-176, December.
    11. Susan Athey & Guido W. Imbens, 2006. "Identification and Inference in Nonlinear Difference-in-Differences Models," Econometrica, Econometric Society, vol. 74(2), pages 431-497, March.
    12. Abdelhamid Abdouli, 1991. "Access to Finance and Collaterals: Islamic Versus Western Banking فرص الحصول على التمويل وعلاقتها بالرهن والضمانات بين النظامين المصرفيين الإسلامي والغربي," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 3(1), pages 55-62, January.
    13. James J. Heckman & Jeffrey A. Smith, 1999. "The Pre-Program Earnings Dip and the Determinants of Participation in a Social Program: Implications for Simple Program Evaluation Strategies," NBER Working Papers 6983, National Bureau of Economic Research, Inc.
    14. Seibel, Hans Dieter & Dwi Agung, Wahyu, 2006. "Islamic Microfinance in Indonesia," Working Papers 2006,2, University of Cologne, Development Research Center.
    15. Heckman, James J & Smith, Jeffrey A, 1999. "The Pre-programme Earnings Dip and the Determinants of Participation in a Social Programme. Implications for Simple Programme Evaluation Strategies," Economic Journal, Royal Economic Society, vol. 109(457), pages 313-348, July.
    16. Rodney Wilson, 2007. "Making Development Assistance Sustainable Through Islamic Microfinance," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 15(2), pages 177-196, December.
    17. Li, Xia & Gan, Christopher & Hu, Baiding, 2011. "Accessibility to microcredit by Chinese rural households," Journal of Asian Economics, Elsevier, vol. 22(3), pages 235-246, June.
    18. 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.
    19. Li, Xia & Gan, Christopher & Hu, Baiding, 2011. "The welfare impact of microcredit on rural households in China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 404-411, August.
    20. Azmat, Saad & Skully, Michael & Brown, Kym, 2015. "Can Islamic banking ever become Islamic?," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 253-272.
    21. Nasrin Shahinpoor, 2009. "The link between Islamic banking and microfinancing," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 36(10), pages 996-1007, August.
    22. Hermes, Niels & Lensink, Robert, 2011. "Microfinance: Its Impact, Outreach, and Sustainability," World Development, Elsevier, vol. 39(6), pages 875-881, June.
    23. Geoff Perry & Tim Maloney, 2007. "Evaluating active labour market programmes in New Zealand," International Journal of Manpower, Emerald Group Publishing, vol. 28(1), pages 7 - 29, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cynthia W. Cai & Martina K. Linnenluecke & Mauricio Marrone & Abhay K. Singh, 2019. "Machine Learning and Expert Judgement: Analyzing Emerging Topics in Accounting and Finance Research in the Asia–Pacific," Abacus, Accounting Foundation, University of Sydney, vol. 55(4), pages 709-733, December.
    2. Juhro, Solikin M. & Narayan, Paresh Kumar & Iyke, Bernard Njindan & Trisnanto, Budi, 2020. "Is there a role for Islamic finance and R&D in endogenous growth models in the case of Indonesia?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    3. Khan, Abdullah & Rizvi, Syed Aun R. & Ali, Mohsin & Haroon, Omair, 2021. "A survey of Islamic finance research – Influences and influencers," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    4. Emira Arefa Aji & Raditya Sukmana, 2023. "Dual Mone Al Monetary Policy And Income Inequ Y Policy And Income Inequality In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(3), pages 539-560, September.
    5. Adil Saleem & Budi Setiawan & Judit Bárczi & Judit Sági, 2021. "Achieving Sustainable Economic Growth: Analysis of Islamic Debt and the Islamic Equity Market," Sustainability, MDPI, vol. 13(15), pages 1-12, July.
    6. Fukuyama, Hirofumi & Tan, Yong, 2022. "Implementing strategic disposability for performance evaluation: Innovation, stability, profitability and corporate social responsibility in Chinese banking," European Journal of Operational Research, Elsevier, vol. 296(2), pages 652-668.
    7. Hassan, M. Kabir & Alshater, Muneer M. & Hasan, Rashedul & Bhuiyan, Abul Bashar, 2021. "Islamic microfinance: A bibliometric review," Global Finance Journal, Elsevier, vol. 49(C).
    8. Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2020. "Islamic banks’ equity financing, Shariah supervisory board, and banking environments," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    9. Ascarya & Ali Sakti, 2019. "Designing Micro-Fintech Models For Islamic Micro Financial Institution In Indonesia," Working Papers WP/09/2019, Bank Indonesia.
    10. Wei Liu & Youfa Sun & Serhat Yüksel & Hasan Dinçer, 2021. "Consensus-based multidimensional due diligence of fintech-enhanced green energy investment projects," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-31, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad Nouman & Karim Ullah & Saleem Gul, 2018. "Why Islamic Banks Tend to Avoid Participatory Financing? A Demand, Regulation, and Uncertainty Framework," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(1), pages 1-32, March.
    2. Waqas Umar Latif & Sana Ullah & Wasim Ahmed & Muhammad Umar Sultan & Rana Muhammad Sohail Jafar & Muhammad Tariq & Wang Linping, 2020. "Microcredit and Economic Welfare: Experience of Poor Rural Households from Pakistan," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(6), pages 976-997, August.
    3. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    4. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    5. Imronudin & Javed Ghulam Hussain, 2016. "Why Do Bank Finance Clients Prefer Mark-up to Profit Loss Sharing Principles? Evidence from Islamic Rural Banks and Small to Medium Enterprises in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1407-1412.
    6. Lechner Michael & Miquel Ruth & Wunsch Conny, 2007. "The Curse and Blessing of Training the Unemployed in a Changing Economy: The Case of East Germany After Unification," German Economic Review, De Gruyter, vol. 8(4), pages 468-509, December.
    7. Ibrahim, Mansor H., 2016. "Business cycle and bank lending procyclicality in a dual banking system," Economic Modelling, Elsevier, vol. 55(C), pages 127-134.
    8. Reinowski, Eva & Schultz, Birgit & Wiemers, Jürgen, 2004. "Evaluation of Further Training Programmes in Saxony from 1989 to 2001," IWH Discussion Papers 188/2004, Halle Institute for Economic Research (IWH), revised 2004.
    9. Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2013. "Risk in Islamic Banking," Review of Finance, European Finance Association, vol. 17(6), pages 2035-2096.
    10. Hamidi, M. Luthfi & Worthington, Andrew C., 2018. "Islamic Social Banking: The Way Forward," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 179-190.
    11. Martin Biewen & Bernd Fitzenberger & Aderonke Osikominu & Marie Paul, 2014. "The Effectiveness of Public-Sponsored Training Revisited: The Importance of Data and Methodological Choices," Journal of Labor Economics, University of Chicago Press, vol. 32(4), pages 837-897.
    12. Serhan Cevik & Joshua Charap, 2015. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 111-124.
    13. Apeti, Ablam Estel & N’Doua, Bossoma Doriane, 2023. "The impact of timber regulations on timber and timber product trade," Ecological Economics, Elsevier, vol. 213(C).
    14. Šeho, Mirzet & Bacha, Obiyathulla Ismath & Smolo, Edib, 2020. "The effects of interest rate on Islamic bank financing instruments: Cross-country evidence from dual-banking systems," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    15. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk & Ibrahim M. Turhan, 2015. "Are Islamic Banks Subject To Depositor Discipline?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-16.
    16. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
    17. Lechner, Michael, 2011. "The Estimation of Causal Effects by Difference-in-Difference Methods," Foundations and Trends(R) in Econometrics, now publishers, vol. 4(3), pages 165-224, November.
    18. Muhammad Nouman & Karim Ullah, 2014. "Constraints in the Application of Partnerships in Islamic Banks: The Present Contributions and Future Directions," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 6(2), pages 47-62, October.
    19. Ibrahim, Mansor H., 2015. "Issues in Islamic banking and finance: Islamic banks, Shari’ah-compliant investment and sukuk," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 185-191.
    20. Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2020. "Islamic banks’ equity financing, Shariah supervisory board, and banking environments," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

    More about this item

    Keywords

    Equity financing; Debt-based financing; Difference-in-difference; Shari'a compliance; Islamic microfinance; Indonesia;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:52:y:2018:i:c:p:163-172. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.