Security Design, Incentives, and Islamic Microfinance: Cross Country Evidence

31 Pages Posted: 11 Nov 2018

See all articles by Yaoyao Fan

Yaoyao Fan

Sun Yat-Sen University (SYSU) - International School of Business and Finance (ISBE)

Kose John

New York University (NYU) - Department of Finance

Hong Liu

University of Aberdeen

Luqyan Tamanni

Tazkia University College of Islamic Economics

Date Written: October 14, 2018

Abstract

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 less likely to ‘mission drift.’ Our results highlight the differences in religiosity and security design between these two institutions. Our study also helps practitioners and policymakers improve the understanding of the difference between conventional and Islamic MFIs.

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

JEL Classification: G20, G21

Suggested Citation

Fan, Yaoyao and John, Kose and Liu, Hong and Tamanni, Luqyan, Security Design, Incentives, and Islamic Microfinance: Cross Country Evidence (October 14, 2018). Available at SSRN: https://ssrn.com/abstract=3274677 or http://dx.doi.org/10.2139/ssrn.3274677

Yaoyao Fan

Sun Yat-Sen University (SYSU) - International School of Business and Finance (ISBE) ( email )

Tangjiawan, Zhuhai Campus
Room 901, 9th Floor, Administration Building
Zhuhai, Guangdong 519082
China

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Hong Liu (Contact Author)

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Luqyan Tamanni

Tazkia University College of Islamic Economics ( email )

Jl. Ir. H. Djuanda No. 78
Sentul City
Bogor, West Java 16810
Indonesia

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