Increasing Financial Inclusion in the Muslim World : Evidence from an Islamic Finance Marketing Experiment
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...
| Main Authors: | , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/816801585835678838/Increasing-Financial-Inclusion-in-the-Muslim-World-Evidence-from-an-Islamic-Finance-Marketing-Experiment http://hdl.handle.net/10986/33574 |
| Summary: | 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. |
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