Understanding Demand for Sharia-Compliant Loans: Results of a Randomized Experiment in Jordan

Study measuring loan take-up and the effects of sharia authentication and price elasticity

The evidence on demand for sharia-compliant financial services is mixed. On the one hand, IFC-funded studies showed relatively high demand, while results from Findex showed that financial exclusion due to religious reasons was minimal. One of the reasons behind these contradictory messages could be the survey instruments themselves: perhaps the issue is not so much what people want but how they were asked. 

CGAP teamed up with Yale University to address this potential survey question bias and to gain more insight into the real nature of demand for sharia-compliant financial services in Jordan. They implemented a randomized experiment with Tamweelcom, a financial institution in Jordan that was launching a sharia-compliant product. The experiment marketed loans to several thousand individuals but varied the type of loan offered to clients. The experiment probed three distinct questions:

  1. What is the demand for sharia-compliant products as compared to conventional products;
  2. How does sharia authentication affect demand for sharia-compliant products;
  3. What is the price elasticity for demand of sharia-compliant products?

This is the first study of its kind that tests actual loan take-up, as measured by applications for a loan, of a sharia-compliant product with consumers. The results are important because they go beyond the typical survey questionnaire problems that have thus far prevented practitioners from understanding the “demand conundrum” or the persistent mismatch between results of surveys that show high demand for sharia-compliant products but limited take-up when and where these products are on offer.