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Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia

Research Archive

Equity financing and debt-based financing: Evidence from Islamic microfinance institutions in Indonesia

Fianto, Bayu ; Gan, Christopher ; Hu, Baiding ; Roudaki, Jamal
Type: Journal Article
Permalink: https://hdl.handle.net/10182/9137
Originally published: 2017-09-23 by Elsevier BV and available at https://doi.org/10.1016/j.pacfin.2017.09.010
Rights: © 2017 Elsevier B.V. All rights reserved.
Keywords: equity financing; debt-based financing; difference-in-difference; shari'a compliance; Islamic microfinance; Indonesia; Finance
Fields of Research: 140210 International Economics and International Finance; 150203 Financial Institutions (Incl. Banking); 150205 Investment and Risk Management; 1502 Banking, Finance And Investment; 1501 Accounting, Auditing And Accountability

Abstract:

This paper investigates the impact of Islamic microfinance on rural households' welfare in Indonesia. Using a survey questionnaire, this study explores two group of financing in Islamic microfinance, equity and debt-based financing. A two-year panel dataset and a double difference-in-difference approach are used to examine the impact of the two Islamic microfinance groups on rural household in Indonesia. The study also evaluates shari'a compliance based on the national shari'a board of Indonesia. The study results indicate that both financing groups exhibit a positive and significant impact on rural households' income, but equity financing performed better than debt-based financing. Moreover, the shari'a compliance evaluation indicates that clients received financing that is comparable with the national shari'a board of Indonesia.

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