Shaban, M., Duygun, M. and Fry, J. (2016) SME's lending and Islamic finance. Is it a “win–win” situation? Economic Modelling, 55. pp. 1-5. ISSN 0264-9993
Abstract
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 results 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.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2016 Elsevier. Year Publisher. This is an author produced version of a paper subsequently published in Economic Modelling. Uploaded in accordance with the publisher's self-archiving policy. Article available under the terms of the CC-BY-NC-ND licence (https://creativecommons.org/licenses/by-nc-nd/4.0/) |
Keywords: | Islamic finance; Banking; SMEs |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Management School (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 23 May 2016 13:30 |
Last Modified: | 14 Apr 2017 02:38 |
Published Version: | http://dx.doi.org/10.1016/j.econmod.2016.01.029 |
Status: | Published |
Publisher: | Elsevier |
Refereed: | Yes |
Identification Number: | 10.1016/j.econmod.2016.01.029 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:99876 |