Rational vs religious: which is more important for ultra­micro SMEs when dealing with financial institutions?

Purpose: This paper aims to examine a range of factors that may influence the intention of ultra-micro-SMEs in Indonesia in choosing the type of microfinance facilities in the case of getting better offerings. Design/methodology/approach: Drawing from the theory of planned behavior (TPB) framework, religious elements factors include religious leader endorsements, religiosity and Sharia compliance, whereas socially/commercially driven factors include social and rational sociodemographic indicators. Data was obtained from 319 ultra-micro-SMEs in emerging economies such as Indonesia, and structural equation modeling was used to analyze the survey data. Findings: The findings reveal that commercial aspects, as rational variables, have a negative influence on the intention to switch from Islamic to conventional microfinancing. On the contrary, social influence from peers and family positively influences the intention to switch from Islamic to conventional microfinancing. Religious aspects, however, have no influence on the intention to switch or actual switching behavior from Islamic to conventional. Intention to switch was shown to positively influence actual switching behavior as per the prediction of the TPB. Originality/value: There is a lack of research on the choice or behavior of ultra-micro-SMEs when deciding whether to use Islamic or conventional microfinance. This study enriches the literature by providing empirical evidence on the factors affecting this choice-making.