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

Yaoyao Fan, Kose John, Frank Hong Liu and Luqyan Tamanni

Journal of International Financial Markets, Institutions and Money, 2019, vol. 62, issue C, 264-280

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 policy makers improve the understanding of the difference between conventional and Islamic MFIs.

Keywords: Microfinance institutions; Sharia-compliant product; Islamic; Security design; Religiosity; Cross country (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.intfin.2019.08.002

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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