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Why Do Large Firms Go For Islamic Loans?

Laurent Weill and Christophe Godlewski

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

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. (search for similar items in EconPapers)
JEL-codes: G21 G32 O16 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ara, nep-cfn, nep-cwa, nep-mfd and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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