BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 7/2012:
Why do large firms go for Islamic loans?
Laurent Weill ()
and Christophe Godlewski
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.
Keywords: Islamic banks; loans; (follow links to similar papers)
JEL-Codes: G21; G32; O16; (follow links to similar papers)
27 pages, April 13, 2012
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