Relationship lending is an innovation measure to reduce credit constraint to micro firms. It refers to a process to build a robust and long-term relationship between financier and entrepreneurs by putting more trust in the prior relationship compared with the traditional financing process. This research aims to examine the existence of relationship lending in Islamic microfinance institutions in Indonesia and how it will affect the financing terms. This research is conducted using surveys of Islamic microfinancing institutions in 2017, which consist of Islamic cooperatives, BMTs, and Islamic rural banks. We found that relationship lending exists in the funding process of Islamic microfinancing institutions. Islamic micro finance tends to rely on a long-term friendly relationship to collect soft information regarding the development of the business as well as trustworthiness of entrepreneurs. Using Wilcoxon signed-rank test, the results show a positive difference in the maximum financing provided and a negative difference in the length of processing time if the credit officer knows the entrepreneur as well as his or her relatives. However, findings regarding terms of the collateral requirement are not conclusive.
|Published - 2018
|Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy. - ID, Bandung, Indonesia
Duration: 1 Jan 2018 → …
|Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy.
|1/01/18 → …
- Relationship Lending, Islamic Microfinance, Indonesian Cooperatives, Wilcoxon Sign-rank Test.