PERCEPTION STUDY ON THE EFFECTS OF INTEREST-FREE FINANCING OF ISLAMIC BANKING ON INFORMATION ASYMMETRY AMONG ENTREPRENEURS: EVIDENCE FROM NIGERIA
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Date
2022
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Publisher
Islamic Business School Universiti Utara Malaysia
Abstract
This study investigates the perception of the relationship between interest-free financing contracts of
Islamic banking as an incentive to provide voluntary information disclosure among entrepreneurs in
Nigeria thereby reducing the incidence of information asymmetry. Questionnaires were used as an
instrument of data collection. Multivariate Logistic Regression Model was employed to estimate the
model. The result showed a positive and significant relationship between the incentive of interest-free
financing contracts and motivation to give voluntary information disclosure, thereby minimizing the
incidence of asymmetric information. Similarly, the finding also indicates that level of education,
understanding and awareness of the procedures of obtaining credit facilities from banks (both
conventional and non-interest banks) has a significant relationship with the entrepreneurs’ motivation to
give voluntary information disclosure to the banks concerning the financing contracts obtained from
Islamic banks. However, the religious belief of the entrepreneurs did not indicate a significant
relationship with their decisions to have a banking relationship with Islamic banks but was largely
motivated by economic factors and business decisions in their relationship with the banks and their
motivation to give voluntary information disclosure. This study, unlike most previous studies on Islamic
banking in Nigeria, investigates the perception of entrepreneurs of the relationship between the incentive
of interest-free financing contracts and motivation to volunteer greater information. The policymakers
can, therefore, leverage the positive perception of entrepreneurs of the incentive of interest-free
financing, to reduce information asymmetry in Islamic banking, and promote the establishment of more
Islamic banks through appropriate legislations and regulations that can ensure enabling operating
environment. This would, in turn, promote financial inclusion and reduce the widening funding gap
experienced by small and medium enterprises in the country.
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Keywords
Asymmetric information, Islamic banking, and interest-free financing.