Financing from Islamic microfinance institutions: evidence from Indonesia

Abstract

Purpose The purpose of this paper is to investigate factors that determine rural households’ access to finance provided by Islamic microfinance institutions (MFIs) in Indonesia. Design/methodology/approach A two-year panel data set with logistic regression is used to identify the determinants of access to finance by rural households. The study sample comprises of 289 Islamic MFIs’ clients and 140 non-clients from East Java, Indonesia. The clients consist of 111 rural households with profit and loss sharing (PLS) schemes, 162 clients with non-profit and loss sharing (non-PLS) schemes and 16 clients with both schemes. Findings The empirical results show that age, gender and income influence rural households to access finance provided by Islamic MFIs. The results show an increase in age and income increase the respondents’ likelihood to access finance. Further, male respondents are more likely to access finance from Islamic MFIs than females. Research limitations/implications The empirical analysis is limited to data obtained from East Java province in Indonesia, and other provinces may show different results. However, this study is among the few studies that investigate access to finance from Islamic MFIs based on PLS and non-PLS schemes. Originality/value The novelty of this study lies in the unique financing accessibility between PLS and non-PLS schemes in Islamic MFIs. This study will be an important addition to the emerging literature on Islamic microfinance.