Post by Sapphire Capital on May 11, 2012 6:00:43 GMT 4
Why Do Large Firms Go for Islamic Loans?
Laurent Weill
University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)
Christophe J. Godlewski
LaRGE Research Center (University of Strasbourg); EM Strasbourg Business School; Université de Haute Alsace
April 10, 2012
BOFIT Discussion Paper No. 7/2012
Abstract:
This paper examines motivations for large firms to choose an Islamic loan over a conventional loan. This investigation helps understanding the causes of the expansion of Islamic finance activities. We employ a dataset of Islamic and conventional syndicated loans from countries from the Middle East and from Southeast Asia for the period 2001-2009, testing determinants for the choice of an Islamic loan at the facility, firm, and country level. We find that loan characteristics do not influence the choice of an Islamic loan, suggesting that borrowers asking for an Islamic loan are not rationed in terms of maturity and amount. The quality of the borrower does not lead to influence the choice of an Islamic loan, meaning that Islamic loans are not associated with a different default risk than 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.
Laurent Weill
University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)
Christophe J. Godlewski
LaRGE Research Center (University of Strasbourg); EM Strasbourg Business School; Université de Haute Alsace
April 10, 2012
BOFIT Discussion Paper No. 7/2012
Abstract:
This paper examines motivations for large firms to choose an Islamic loan over a conventional loan. This investigation helps understanding the causes of the expansion of Islamic finance activities. We employ a dataset of Islamic and conventional syndicated loans from countries from the Middle East and from Southeast Asia for the period 2001-2009, testing determinants for the choice of an Islamic loan at the facility, firm, and country level. We find that loan characteristics do not influence the choice of an Islamic loan, suggesting that borrowers asking for an Islamic loan are not rationed in terms of maturity and amount. The quality of the borrower does not lead to influence the choice of an Islamic loan, meaning that Islamic loans are not associated with a different default risk than 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.
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