Diversification and banks’ willingness to lend to small businesses: Evidence from Islamic and conventional banks in Indonesia

Shaban, Mohamed; Duygun, Meryem; Anwar, Mokhamad; Akbar, Bahrullah

doi:10.1016/j.jebo.2014.03.021

Cited by 89 publications

(76 citation statements)

References 17 publications

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“…They also found there is a relationship between bank size and loan type to banks' capital and bank lending. Reference [16] found that in Indonesia, small banks are more interested than larger banks in giving loans to the small enterprises.…”

Section: Overview Of Indonesian Banksmentioning

confidence: 99%

Lending Behavior of Indonesian Banks

Isthika

Pratiwi

2017

adv sci lett

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The main banking activity basically is taking deposits from the surplus unit and lends it to deficit units, or in other words banks will act as financial intermediaries. In lending activities banks are faced with credit risks. Thus, this paper is examining the determinants of lending behavior in Indonesian banks. This paper uses lagged loans, deposits, capital, non-performing loans, and bank size as determinant variables on lending behavior of Indonesian banks. The data are taken from financial performance of 30 Indonesian banks listed on the Indonesia Stock Exchange from the year of 2011, 2012 and 2013. The model developed in this research is an ordinary least squares method using SPSS software. The result proved that there is no empirical evidence shows that lending behavior of Indonesian banks is influenced by the amount of deposits, non-performing loans, and bank size. Whereas, there is significant evidence shows that lagged loans and capital do influence the lending behavior of Indonesian banks. This indicates that Indonesian banks are making the decision of lending activities based on the previous loans and capital owned by the banks. Capital could be used by the banks to cover the unavoidable losses, therefore it affects the decision making by the Indonesian banks in regards to the lending activities.

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Section: Overview Of Indonesian Banksmentioning

confidence: 99%

Lending Behavior of Indonesian Banks

Isthika

Pratiwi

2017

adv sci lett

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“…Moreover, according to Shaban et al (2014), Islamic banks in Indonesia prefer 'murabahah' contracts when they lend to small businesses. The authors illustrate a 'Murabahah' contract scenario, whereby "the 'Murabahah' contract ('biaa') or sale constitutes a bank buying an asset on behalf of the client and selling it to the client at a mark-up price.…”

Section: Asian Journal Of Finance and Accountingmentioning

confidence: 99%

Strict and Uniform Shariah Screening Methodologies in Selected Asian Countries in Comparison with the United States

Kasi

Muhammad²

2016

AJFA

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This paper focuses mainly on the Shariah screening methodologies for Shariah-Compliant firms. This paper compares the Shariah screening methodologies which are used in selected Asian countries and the United States, a 'powerhouse' nation. In order to include the analysis of the new benchmark introduced in Malaysia as part of this study, the timeline used in this paper is from November 2013 until November 2014. It can be found that there are similarities and differences between the various Shariah screening methodologies in all the 5 countries, in terms of feasibility, duration, economic viability and fund requirements. It also appears that the Shariah screening methodologies implied in the United States is far more stringent than those implied in the selected Asian countries. On the whole, the results point towards the possibility of generalising the implementation of strict and uniform Shariah screening methodologies within all the country-specific Shariah Indices amongst Muslim nations, globally.

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“…A number of factors including information asymmetry, lack of collateral and inexperienced management are significant challenges to SMEs access to external funds (among others Shaban et al, 2014;Owualah, 1990;Petersen and Rajan, 1994). Banks as financial intermediaries are expected to be one of the main providers of funds to SMEs, in the similar way that they provide lending to households, government entities and large corporations.…”

Section: Introductionmentioning

confidence: 99%

SME's lending and Islamic finance. Is it a “win–win” situation?

2016

Self Cite

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Information asymmetry is a common feature that hinders lending to small and medium enterprises (SMEs). In the last decade, the growth in Islamic banks lending to SMEs was overwhelming to the extent that it prompted practitioners to regard this as a" win-win" situation. Unlike a conventional bank that mainly resorts to relationship banking to SMEs, an Islamic bank uses a Murabaha contract that creates a "collateral-by-contract" to the borrower. Such distinct lending approaches by the two types of banks have an implication on banks' cost curves that arise from differences in monitoring cost. In this article, we develop a two-stage competition model to investigate the growth in SMEs lending by Islamic banks. In our theoretical model, Islamic and conventional banks compete with prices at the first stage (Bertrand framework) and with loan output at the second stage (Cournot framework). Our result reveal that in price competition an Islamic bank will gain market share initially due to its differentiated product. However, in the second stage, the amount of lending to SMEs by Islamic banks decreases due to market share competition.

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Diversification and banks’ willingness to lend to small businesses: Evidence from Islamic and conventional banks in Indonesia

Cited by 89 publications

References 17 publications

Lending Behavior of Indonesian Banks

Lending Behavior of Indonesian Banks

Strict and Uniform Shariah Screening Methodologies in Selected Asian Countries in Comparison with the United States

SME's lending and Islamic finance. Is it a “win–win” situation?

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