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Islamic banking development and access to credit

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  • Léon, Florian
  • Weill, Laurent

Abstract

The recent expansion of Islamic banks raises questions on its economic implications. The aim of this paper is to investigate the impact of Islamic banking development on access to credit. We combine data from a unique hand-collected database that covers Islamic banks with firm-level data covering developing and emerging countries over the period of 2006 to 2009. We find that Islamic banking development has overall no impact on credit constraints, while banking development and conventional banking development alleviate obstacles to financing. However Islamic banking development exerts a positive impact on access to credit when conventional banking development is low. Hence we support the view that Islamic banking does not overall alleviate obstacles to financing, but it can act as substitute to conventional banking.

Suggested Citation

  • Léon, Florian & Weill, Laurent, 2018. "Islamic banking development and access to credit," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 54-69.
  • Handle: RePEc:eee:pacfin:v:52:y:2018:i:c:p:54-69
    DOI: 10.1016/j.pacfin.2017.04.010
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    More about this item

    Keywords

    Islamic finance; Access to credit; Credit constraints;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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