Why Do Large Firms Go for Islamic Loans?

University of Strasbourg Laboratoire de Recherche en Gestion et Economie Working Paper No. 2012-05

25 Pages Posted: 4 Apr 2012

See all articles by Laurent Weill

Laurent Weill

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business; EM Strasbourg Business School; LaRGE Research Center

Multiple version iconThere are 2 versions of this paper

Date Written: April 4, 2012

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 lenders 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 religiosity, i.e. the share of Muslim population in a country, but the quality of institutions and level of financial development also play substantial roles.

Keywords: Islamic banks, loans

JEL Classification: 21, G32, O16

Suggested Citation

Weill, Laurent and Godlewski, Christophe J., Why Do Large Firms Go for Islamic Loans? (April 4, 2012). University of Strasbourg Laboratoire de Recherche en Gestion et Economie Working Paper No. 2012-05. Available at SSRN: https://ssrn.com/abstract=2034536 or http://dx.doi.org/10.2139/ssrn.2034536

Laurent Weill (Contact Author)

University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie) ( email )

61 Avenue de la Forêt Noire
F-67085 Strasbourg Cedex
France

Christophe J. Godlewski

University of Strasbourg - Faculty of Law and Business ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

EM Strasbourg Business School ( email )

61 Avenue de la Forêt Noire
Strasbourg, 67000
France

HOME PAGE: http://www.em-strasbourg.eu/

LaRGE Research Center ( email )

1 place d'Athènes
Strasbourg, 67000
France

HOME PAGE: http://droit.unistra.fr/

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