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Why Do Large Firms Opt for Islamic Loans?

Author

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  • Laurent Weill

    (EM Strasbourg Business School, University of Strasbourg, 61 avenue de la Forêt Noire, 67000 Strasbourg, France)

  • Christophe Godlewski

    (EM Strasbourg Business School and University of Haute-Alsace, 61 avenue de la Forêt Noire, 67000 Strasbourg, France)

Abstract

This paper examines the motivations for large firms to choose an Islamic loan over a conventional loan and the recent expansion of Islamic finance activities. We employ a dataset of Islamic and conventional syndicated loans from countries in the Middle East and Southeast Asia for the period 2001−2009, testing determinants for the choice of an Islamic loan at the facility, firm, and country level. From the lender’s standpoint, loan characteristics apparently do not influence the decision to offer Islamic loans nor are they rationed to borrowers in terms of maturity or amount. Moreover, firms taking Islamic loans do not appear to differ in terms of default risk from firms taking conventional loans. We identify three country-level determinants as potential driving forces expanding the preference for Islamic loans. The strongest determinant is the share of Muslim population in a country, but the quality of institutions and level of financial development also play substantial roles.

Suggested Citation

  • Laurent Weill & Christophe Godlewski, 2014. "Why Do Large Firms Opt for Islamic Loans?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 132-153, March.
    • Handle: RePEc:pal:compes:v:56:y:2014:i:1:p:132-153
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    Cited by:

    1. Laurent Weill, 2014. "Islamic Economics: Where From, Where To? Muhammad Nejatullah Siddiqi الاقتصاد الإسلامي: من أين وإلى أين؟ محمد نجاة الله صديقي - تعليق: رودني ويلسون," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 27(2), pages 79-84, July.

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