Resilience in Islamic Microfinance: Examining Women, Organizations, and Agricultural Consumers’ Impact on Credit Risk

Using global data, we find that Islamic microfinance institutions (MFIs) are less likely to experience credit risk when they lend to more organizations, more women, and more agricultural consumers. Consequently, conventional MFIs benefit from a reduction in loans to group borrowers, a reduction in loans to agriculture region customers, and increased focus on women consumers. We present results that demonstrate the possibility of using social dynamics within Muslim communities, adding to the literature on microfinance and financial inclusion. As part of our work, we provide positive information about how to promote women’s and agricultural consumers’ financial inclusion. This information is provided to funders and managers of Islamic MFIs. All of this is achieved without affecting the credit portfolio quality. Our research ultimately shows that social dynamics can be used to promote financial inclusion while preserving the credit portfolio. In conclusion, our research suggests that Islamic MFIs can take advantage of social dynamics to achieve financial inclusion without compromising portfolio quality.