EFFECT OF INTEREST-FREE FINANCING OF ISLAMIC BANKING ON INFORMATION ASYMMETRY AMONG ISLAMIC BANK CUSTOMERS: EVIDENCE FRON NIGERIA
No Thumbnail Available
Date
2020
Journal Title
Journal ISSN
Volume Title
Publisher
DEPARTMENTS OF ACCOUNTING AND FINANCE & BUSINESS ADMINISTRATION, FOUNTAIN UNIVERSITY, OSOGBO, NIGERIA
Abstract
Purpose: This study investigates whether interest-free financing contract of Islamic banking provides an incentive for entrepreneurs in Nigeria, to provide full information disclosure of their business performance and thus reduce the incidence of information asymmetry in respect of financing received from Islamic banks.
Design/methodology/approach: Multivariate Logistic Regression Model was employed to estimate the binary categorical variables of the model.
Findings: The result shows a positive and significant relationship between the incentive of interest-free financing contract and motivation to give voluntary information disclosure, thereby minimizing the incidence of asymmetric information in respect of the funding obtained from Islamic banks. It was also found that the religious belief of the entrepreneurs does not significantly impact their decisions to have a banking relationship with Islamic banks but are rather motivated by economic factors and business decisions.
Practical implications: The policymakers in Nigeria can, therefore, leverage the positive attitude of entrepreneurs towards Islamic banking interest-free financing contract to promote financial inclusion and narrow down the widening funding gap faced by small and medium enterprises thereby promoting entrepreneurship and significantly reduce the unemployment level in the country.
Social implications: Access to accommodative financing of Islamic banking can improve the general welfare of the citizenry, raise the national productivity and positively impact the national income.
Originality/value: This study, unlike most previous studies on Islamic banking in Nigeria which were largely focused on the value proposition of Islamic banking, examines the effects of the incentive of interest-free financing contract on the behaviour of Islamic bank customers to volunteer greater information. The study further enriches the literature on the effects of the incentive of interest-free financing as a significant determinant of the attitude of entrepreneur bank customers towards full information disclosure thereby minimizing the incidence of information asymmetry in banking relationship with Islamic banks.
Description
Keywords
Asymmetric information, Islamic banking, and interest-free financing