Favoring the small and the plenty: Islamic banking for MSMEs in an Emerging Market

Nov 14, 2019


Saloon 1

60 min.

First Day

While MSMEs form the backbone of many countries, most of them suffer from limited access to finance. We introduce an additional dimension to the literature by examining whether Islamic banks, compared to their conventional peers, favor more the Turkish MSME segment of the credit market. We do this by considering various aspects of the lending behavior towards MSMEs (total lending, foreign currency lending, loan commitments, loan quality, revenues, and cyclicality) across different MSME size categories (micro, small and medium-sized firms). Our findings, in general and throughout different size categories, confirm that Islamic banks are more engaged with total lending, foreign currency lending, and letters of credit issuances. We also find that Islamic banks generate more revenues from MSME lending. The quality of their MSME loan portfolio is, however, not unequivocally different. Our findings further show that MSME lending by Islamic banks tends to be on average less cyclical.

  • Ahmet Faruk Aysan
    Ahmet Faruk Aysan

    İstanbul Şehir University

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