Increasing Financial Inclusion in the Muslim World: Evidence from an Islamic Finance Marketing Experiment

44 Pages Posted: 3 Apr 2020

See all articles by Dean S. Karlan

Dean S. Karlan

Yale University; Northwestern University - Kellogg School of Management; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Adam Osman

University of Illinois at Urbana-Champaign; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); Economic Research Forum (ERF)

Nour Musallam Shammout

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL)

Date Written: April 2, 2020

Abstract

Low utilization of household credit in developing countries may be partially due to religious considerations. In a randomized marketing experiment in Jordan, this paper estimates the effect of sharia-compliant loan features on demand for credit. To comply with Islamic law, the sharia-compliant product uses a bank fee rather than an interest payment structure, while keeping the rest of the product features very similar. Sharia-compliance increased the application rate for loans from 18 percent to 22 percent, an increase in demand that is equivalent to a 10 percent decrease in interest rates. This study also randomly varied the price of the sharia-compliant loan and finds that less religious individuals are twice as elastic with respect to price as the more religious. By comparing reasons for refusal across treatment groups, this paper estimates that survey measures that try to assess the importance of religious objections to conventional credit overestimate the importance of this type of objection by a third.

Suggested Citation

Karlan, Dean S. and Karlan, Dean S. and Osman, Adam and Shammout, Nour Musallam, Increasing Financial Inclusion in the Muslim World: Evidence from an Islamic Finance Marketing Experiment (April 2, 2020). World Bank Policy Research Working Paper No. 9200, Available at SSRN: https://ssrn.com/abstract=3567480

Dean S. Karlan (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER)

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Adam Osman

University of Illinois at Urbana-Champaign ( email )

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Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

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Economic Research Forum (ERF) ( email )

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Nour Musallam Shammout

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

30 Wadsworth Street, E53-320
77 Massachusetts Avenue
Cambridge, MA 02142
United States

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