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Security design, incentives, and Islamic Microfinance: Cross country evidence

Tanggal Publikasi: 25 Jan 2023

Abstrak

We provide cross country evidence from microfinance institutions (MFIs) that are Sharia-compliant and their comparisons with non-Sharia-compliant MFIs. We find that, compared with non-Sharia-compliant conventional MFIs, Sharia-compliant Islamic MFIs have less credit risk but are less profitable and financially sustainable, have better poverty outreach, and are lesslikely to ‘mission drift’. Our results highlight the differences in religiosity and security design between these two institutions. Our study also helps practitioners and investors improve the understanding of the difference between conventional and Islamic MFIs. The regulatory support for the development of Islamic MFIs is a feasible way to improve income of all poor Muslims

Keyword

microfinance institutions, Sharia-compliant product, Islamic, security design, religiosity, cross country