Abstract
We examine the impact of religious beliefs on loan repayments in 770 microfinance institutions (MFIs) across 65 countries over the period 2006–2018. We find robust evidence of a negative relationship between religiosity and loan losses in MFIs. We also find that the relationship between religiosity and loan losses is stronger for MFIs in Protestant-dominated countries than in Catholic-dominated countries. Moreover, religiosity improves the operational self-sufficiency of MFIs through a reduction in loan losses. We find that religiosity does not improve the loan repayment behaviour of women borrowers, but it reduces the loan size per borrower. Overall, our evidence suggests that although religiosity reduces loan losses through religiosity-induced lender-risk aversion, it does not improve the loan repayment behaviour of borrowers. We also use several approaches to evaluate our results to the effects of endogeneity.
Similar content being viewed by others
Code availability
Software application.
Notes
MFIs operate in an environment where collateral is scarce. Consequently, MFIs mostly resort to group lending with joint liability to create social collateral, which replaces physical collateral (Simtowe et al. 2006). However, prior studies have suggested that unlike collateralised loan contracts, joint liability loan contracts lead to loan defaults due to moral hazard, collusion and free-riding (Simtowe et al. 2006). Nevertheless, MFIs that take customer deposits have the luxury of using these deposits as collateral to either discourage customers from loan defaults or confiscate these deposits if customers default.
This was based on the results of the Hausman test (Hausman 1978), which rejects the null hypothesis that individual effects are uncorrelated.
In unreported regressions, we replaced OSS with the return on assets (ROA). The results remained qualitatively similar.
Following Adhikari and Agrawal (2016a), we also adopted 2007–2008 as the financial crisis years. The untabulated results remained qualitatively similar.
References
Abrams D, Hogg MA (1988) Comments on the motivational status of self-esteem in social identity and intergroup discrimination. Eur J SocPsychol 18(4):317–334
Adhikari BK, Agrawal A (2016a) Does local religiosity matter for bank risk-taking? J Corp Financ 38:272–293
Adhikari BK, Agrawal A (2016b) Religion, gambling attitudes and corporate innovation. J Corp Financ 37:229–248
Afrifa GA, Gyapong E, Monem RM (2018) Product differentiation, market dynamics and the value relevance of trade payables: evidence from UK listed firms. J Contemp Account Econ 14(3):235–253
Afrifa GA, Gyapong E, Zalata AM (2019) Buffer capital, loan portfolio quality and the performance of microfinance institutions: a global analysis. J Financ Stab 44:100691
Ahlin C, Lin J, Maio M (2011) Where does microfinance flourish? Microfinance institution performance in macroeconomic context. J Dev Econ 95(2):105–120
Albaum G, Peterson RA (2006) Ethical attitudes of future business leaders: do they vary by gender and religiosity? Bus Soc 45(3):300–321
Ameen F (2004) Loan repayment in the Grameen Bank: the importance of borrower opportunity cost and gender. Res Bank Financ 5:109–136
Ashraf BN, Zheng C, Arshad S (2016) Effects of national culture on bank risk-taking behavior. Res Int Bus Financ 37:309–326
Assefa E, Hermes N, Meesters A (2013) Competition and the performance of microfinance institutions. ApplFinanc Econ 23(9):767–782
Baele L, Farooq M, Ongena S (2014) Of religion and redemption: evidence from default on Islamic loans. J Bank Financ 44:141–159
Baiardi D, Morana C (2017) Financial development and income distribution inequality in the euro area. Econ Modell 70:40–55
Balgova M, Nies M, Plekhanov A (2016) The economic impact of reducing non-performing loans. European bank for reconstruction and development working paper, 193
Baum CF (2006) An introduction to modern econometrics using Stata. Stata Press, College Station
Becchetti L, Castriota S (2011) Does microfinance work as a recovery tool after disasters? Evidence from the 2004 Tsunami. World Dev 39(6):898–912
Blanco-Oliver A, Irimia-Dieguez A, Reguera-Alvarado N (2016) Prediction-oriented PLS path modeling in microfinance research. J Bus Res 69(10):4643–4649
Bogan VL (2012) Capital structure and sustainability: an empirical study of microfinance institutions. Rev Econ Stat 94(4):1045–1058
Borkowski SC, Ugras YJ (1998) Business students and ethics: a meta-analysis. J Bus Ethics 17(11):1117–1127
Brown JR, Ivković Z, Smith PA, Weisbenner S (2008) Neighbors matter: causal community effects and stock market participation. J Financ 63(3):1509–1531
Burton JH, Talpade S, Haynes J (2011) Religiosity and test-taking ethics among business school students. J Acad Bus Ethics 4:1
Bushman RM, Williams CD (2012) Accounting discretion, loan loss provisioning, and discipline of banks’ risk-taking. J Account Econ 54(1):1–18
Campbell JY, Viceira LM (2005) The term structure of the risk–return trade-off. Financ Anal J 61(1):34–44
Chandra MJ, Bahner ML (1985) The effects of inflation and the time value of money on some inventory systems. Int J Prod Res 23(4):723–730
Chaves M (2010) SSSR presidential address rain dances in the dry season: overcoming the religious congruence fallacy. J Sci Stud Relig 49(1):1–14
Chen H, Huang HH, Lobo GJ, Wang C (2016) Religiosity and the cost of debt. J Bank Financ 70:70–85
Choma BL, Hanoch Y, Hodson G, Gummerum M (2014) Risk propensity among liberals and conservatives: the effect of risk perception, expected benefits, and risk domain. SocPsychol Personal Sci 5(6):713–721
Cochran JK, Akers RL (1989) Beyond hellfire: an exploration of the variable effects of religiosity on adolescent marijuana and alcohol use. J Res Crime Delinq 26(3):198–225
Conroy SJ, Emerson TL (2004) Business ethics and religion: religiosity as a predictor of ethical awareness among students. J Bus Ethics 50(4):383–396
Cook EA, Jelen TG, Wilcox C (1993) Catholicism and abortion attitudes in the American states: a contextual analysis. J Sci Stud Relig 32:223–230
Cooperman A, Hackett C, Ritchey K (2014) Global religious diversity: half of the most religious diverse Countries are in Asia-Pacific Region. http://www.pewforum.org/2014/04/04/global-religious-diversity/
Cornwall M (1989) The determinants of religious behaviour: a theoretical model and empirical test. Soc Forces 68(2):572–592
Cull R, Demirgu¨ç-Kunt A, Morduch J (2007) Financial performance and outreach: a global analysis of leading microbanks. Econ J 117(517):F107–F133
D’Espallier B, Guérin I, Mersland R (2011) Women and repayment in microfinance: a global analysis. World Dev 39(5):758–772
Dehejia R, DeLeire T, Luttmer EF (2007) Insuring consumption and happiness through religious organizations. J Public Econ 91(1):259–279
Derrien F, Kecskés A, Mansi SA (2016) Information asymmetry, the cost of debt, and credit events: evidence from quasi-random analyst disappearances. J Corp Financ 39:295–311
Diagne A, Zeller M, Sharma MP (2000) Empirical measurements of households access to credit and credit constraints in developing countries: methodological issues and evidence (No. 583-2016-39550)
Diaz JD (2000) Religion and gambling in sin-city: a statistical analysis of the relationship between religion and gambling patterns in Las Vegas residents. SocSci J 37(3):453–458
Dyreng SD, Mayew WJ, Williams CD (2012) Religious social norms and corporate financial reporting. J Bus Financ Account 39(7–8):845–875
Evans TD, Cullen FT, Dunaway RG, Burton VS (1995) Religion and crime re-examined: the impact of religion, secular controls, and social ecology on adult criminality. Criminology 33(2):195–224
Franke GR, Crown DF, Spake DF (1997) Gender differences in ethical perceptions of business practices: a social role theory perspective. J ApplPsychol 82:920
El Ghoul S, Guedhami O, Ni Y, Pittman J, Saadi S (2012) Does religion matter to equity pricing? J Bus Ethics 111(4):491–518
Gao L, Wang Y, Zhao J (2017) Does local religiosity affect organizational risk-taking? Evidence from the hedge fund industry. J Corp Financ 47:1–22
Ghosh A (2015) Banking-industry specific and regional economic determinants of non-performing loans: evidence from US states. J Financ Stab 20:93–104
Gyapong E, Afrifa GA (2019) National culture and women managers: evidence from microfinance institutions around the world. Bus Soc 0007650319876101
Ghysels E, Santa-Clara P, Valkanov R (2005) There is a risk-return trade-off after all. J Financ Econ 76(3):509–548
Godquin M (2004) Microfinance repayment performance in Bangladesh: how to improve the allocation of loans by MFIs. World Dev 32(11):1909–1926
Goto S, Xiao G, Xu Y (2015) As told by the supplier: trade credit and the cross section of stock returns. J Bank Financ 60:296–309
Graham J, Haidt J (2010) Beyond beliefs: religions bind individuals into moral communities. Personal SocPsychol Rev 14(1):140–150
Greene WH (2008) Econometric analysis, 6th edn. Prentice-Hall, Upper Saddle River
Grullon G, Kanatas G, Weston J (2010) Religion and corporate (mis) behavior. Unpublished Working paper. Rice University
Guiso L, Sapienza P, Zingales L (2003) People’s opium? Religion and economic attitudes. J Monet Econ 50(1):225–282
Guiso L, Sapienza P, Zingales L (2008) Trusting the stock market. J Financ 63(6):2557–2600
Gul FA, Podder J, Shahriar AZM (2017) Performance of microfinance institutions: does government ideology matter? World Dev 100:1–15
Gyapong E, Monem RM, Hu F (2016) Do women and ethnic minority directors influence firm value? Evidence from post-apartheid South Africa. J Bus Financ Account 43(3–4):370–413
Gyapong E, Ahmed A, Ntim CG, Nadeem M (2019) Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration. Asia Pacific J Manag 5:1–41
Hausman JA (1978) Specification tests in econometrics. Econometrica 46(6):1251–1271
He W, Hu MR (2016) Religion and bank loan terms. J Bank Financ 64:205–215
Heaton TB, Pratt EL (1990) The effects of religious homogamy on marital satisfaction and stability. J Fam Issues 11(2):191–207
Hilary G, Hui KW (2009) Does religion matter in corporate decision making in America? J Financ Econ 93(3):455–473
Hong H, Kubik JD, Stein JC (2004) Social interaction and stock-market participation. J Financ 59(1):137–163
Hulme D (1991) Field reports. The Malawi mundi fund: daughter of Grameen. J Int Dev 3(3):427–431
Ibrahim NA, Howard DP, Angelidis JP (2008) The relationship between religiousness and corporate social responsibility orientation: are there differences between business managers and students? J Bus Ethics 78(1):165–174
Jay C (2014) The Kantian moral hazard argument for religious fictionalism. Int J Philos Relig 75(3):207–232
Jha S (2015) Financial asset holdings and political attitudes: evidence from revolutionary England. Q J Econ 130(3):1485–1545
Jiang F, Jiang Z, Kim KA, Zhang M (2015) Family-firm risk-taking: does religion matter? J Corp Financ 33:260–278
Johnstone RL (1992) Religion in society: a sociology of religion. Prentice-Hall, Englewood Cliffs
Kanagaretnam K, Lobo GJ, Wang C, Whalen DJ (2015) Religiosity and risk-taking in international banking. J BehavExpFinanc 7:42–59
Kestens K, Van Cauwenberge P, Bauwhede HV (2012) Trade credit and company performance during the 2008 financial crisis. Account Financ 52(4):1125–1151
Kevane M, Wydick B (2001) Microenterprise lending to female entrepreneurs: sacrificing economic growth for poverty alleviation? World Dev 29(7):1225–1236
Kumar A, Page JK, Spalt OG (2011) Religious beliefs, gambling attitudes, and financial market outcomes. J Financ Econ 102(3):671–708
Kumhof M, Ranciere R, Winant P (2015) Inequality, leverage, and crises. Am Econ Rev 105(3):1217–1245
Kurpis LV, Beqiri MS, Helgeson JG (2008) The effects of commitment to moral self-improvement and religiosity on ethics of business students. J Bus Ethics 80(3):447–463
Leege DC (1995) Religiosity measures on the National Election Studies: a guide to their use in voting studies. In: Tempe, AZ: presentation at national election studies conference on values and predispositions
Leege DC, Wald KD, Kellstedt LA (1993) The public dimension of private devotionalism. Rediscovering the religious factor in American politics, pp139–156
Liu Y, Wei Z, Xie F (2014) Do women directors improve firm performance in China? J Corp Financ 28:169–184
Louis P, Baesens B (2013) Do for-profit microfinance institutions achieve better financial efficiency and social impact? A generalised estimating equations panel data approach. J Dev Eff 5(3):359–380
Malinowski B (1925) Magic, science and religion. Macmillan, New York
McGuire ST, Omer TC, Sharp NY (2011) The impact of religion on financial reporting irregularities. Account Rev 87(2):645–673
McIntosh S (2015) Integral consciousness and the future of evolution. Paragon House, Saint Paul
Mian A, Sufi A (2014) What explains the 2007–2009 drop in employment? Econometrica 82(6):2197–2223
Miller AS, Hoffmann JP (1995) Risk and religion: an explanation of gender differences in religiosity. J Sci Stud Relig 34(1):63–75
Miller AS, Stark R (2002) Gender and religiousness: can socialization explanations be saved? Am J Sociol 107(6):1399–1423
Miller AS (1992) Conventional religious behaviour in modern Japan: a service industry perspective. J Sci Stud Relig 31:207–214
Mockabee ST, Monson JQ, Grant JT (2001) Measuring religious commitment among Catholics and Protestants: a new approach. J Sci Stud Relig 40(4):675–690
Morduch J (1999) The microfinance promise. J Econ Lit 37(4):1569–1614
Moro A, Fink M (2013) Loan managers’ trust and credit access for SMEs. J Bank Financ 37(3):927–936
Nadeem M, Gyapong E, Ahmed A (2020) Board gender diversity and environmental, social, and economic value creation: does family ownership matter? Bus Strategy Environ 29(3):1268–1284
Navajas S, Schreiner M, Meyer RL, Gonzalez-Vega C, Rodriguez-Meza J (2000) Microcredit and the poorest of the Poor: theory and evidence from Bolivia. World Dev 28(2):333–346
Osoba B (2003) Risk preferences and the practice of religion: evidence from panel data. Unpublished working paper, West Virginia University
Oster E (2019) Unobservable selection and coefficient stability: theory and evidence. J Bus Econ Stat 37(2):187–204
Petersen MA, Rajan RG (1994) The benefits of lending relationships: evidence from small business data. J Financ 49(1):3–37
Peterson RA, Albaum G, Merunka D, Munuera JL, Smith SM (2010) Effects of nationality, gender, and religiosity on business-related ethicality. J Bus Ethics 96(4):573–587
Porteous D (2006) The enabling environment for mobile banking in Africa
Qi Y, Roth L, Wald JK (2010) Political rights and the cost of debt. J Financ Econ 95(2):202–226
Quayes S (2012) Depth of outreach and financial sustainability of microfinance institutions. Appl Econ 44(26):3421–3433
Rai A, Ravi S (2011) Do spouses make claims? Empowerment and microfinance in India. World Dev 39(6):913–921
Renneboog L, Spaenjers C (2012) Religion, economic attitudes, and household finance. Oxf Econ Pap 64(1):103–127
Rosenberg R (2010) Does microcredit really help poor people? Focus note, No. 59. CGAP, Washington, DC
Schaeck K, Cihak M (2012) Banking competition and capital ratios. EurFinancManag 18(5):836–866
Schafer K, Fukasawa Y (2011) Factors determining the operational self-sufficiency among microfinance institutions. Adv Bus Res 2(1):171–178
Servin R, Lensink R, Van den Berg M (2012) Ownership and technical efficiency of microfinance institutions: empirical evidence from Latin America. J Bank Financ 36(7):2136–2144
Seven U, Coskun Y (2016) Does financial development reduce income inequality and poverty? Evidence from emerging countries. Emerg Mark Rev 26:34–63
Shu T, Sulaeman J, Yeung PE (2012) Local religious beliefs and mutual fund risk-taking behaviors. ManagSci 58(10):1779–1796
Simtowe F, Zeller M, Phiri A (2006) Determinants of moral hazard in microfinance: empirical evidence from joint liability lending programs in Malawi. African review of money finance and banking, pp 5–38
Stark R, Bainbridge WS (1985) The future of religion: secularization, revival, and cult formation. University of California Press, Berkeley
Strøm RØ, D’Espallier B, Mersland R (2014) Female leadership, performance, and governance in microfinance institutions. J Bank Financ 42:60–75
Stulz RM, Williamson R (2003) Culture, openness, and finance. J Financ Econ 70(3):313–349
Tchuigoua HT (2016) Buffer capital in microfinance institutions. J Bus Res 69(9):3523–3537
Thompson JE (2001) American policy and Northern Ireland: a saga of peacebuilding. Greenwood Publishing Group, Westport
Uchida H, Udell GF, Yamori N (2012) Loan officers and relationship lending to SMEs. J FinancIntermed 21(1):97–122
Visser M (2008) Conversion growth of Protestant churches in Thailand. Doctoral dissertation, Boekencentrum
Vitell SJ, Singh JJ, Paolillo JG (2007) Consumers’ ethical beliefs: the roles of money, religiosity and attitude toward business. J Bus Ethics 73(4):369–379
Wald KD, Smidt CE (1993) Measurement strategies in the study of religion and politics. Rediscovering the religious factor in American politics, pp 26–49
Walker JS, Jorasch JA, Gelman GM, International Game Technology (2012) Method and apparatus for facilitating entry into bonus rounds. U.S. Patent 8,142,272
Walter T, Davie G (1998) The religiosity of women in the modern West. Br J Sociol 49:640–660
Weaver GR, Angle BR (2002) Religiosity and ethical behaviour in organizations: a symbolic interactionist perspective. Acad Manag Rev 27(1):77–97
Weber M (1930) The protestant ethic and the spirit of capitalism. Allen and Unwin, London
Wijesiri M (2016) Weathering the storm: ownership structure and performance of microfinance institutions in the wake of the global financial crisis. Econ Model 57:238–247
Wong YLR, Vinsky J (2008) Speaking from the margins: a critical reflection on the ‘spiritual-but-not-religious’ discourse in social work. Br J Soc Work 39(7):1343–1359
Yimga J (2016) The impact of high microfinance growth on loan portfolio. J Int Dev 28(5):697–714
Yonker SE (2016) Geography and the market for CEOs. ManagSci 63(3):609–630
Young S (2010) The “moral hazards” of microfinance: restructuring rural credit in India. Antipode 42(1):201–223
Yunus M (1999) Banker to the poor: micro-lending and the battle against world poverty. Public Affairs, New York
Yunus M (2007) Creating a world without poverty: social business and the future of capitalism. Public Affairs, New York
Funding
Not applicable.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
No conflict of interest among authors.
Ethics approval
Not applicable.
Consent to participate
All authors’ consent sought.
Consent for publication
All authors’ consent sought.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Gyapong, E., Gyimah, D. & Ahmed, A. Religiosity, borrower gender and loan losses in microfinance institutions: a global evidence. Rev Quant Finan Acc 57, 657–692 (2021). https://doi.org/10.1007/s11156-021-00958-5
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11156-021-00958-5