Security Design, Incentives, and Islamic Microfinance: Cross Country Evidence
31 Pages Posted: 11 Nov 2018
Date Written: October 14, 2018
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: Suggested Citation