LKMS with unique characteristics, in general has the potential to attract risk-averting individuals to access it. This is at least a mechanism of natural selection intervention (ex-ante) in reducing the possibility of adverse selection of customers with the concept of LKMS. However, several studies have also found that various LKMS financing products also provide incentives and disincentives to the trend of stalled installment financing. This study highlights the impact of characteristics such as: risk and religiosity preferences, which may differ from individual beneficiaries of financing in Islamic microfinance institutions (LKMS) against the probability of defaulting their defaults. The study was conducted by taking primary data in the form of samples of 60 customers who received financing from 1 (one) LKMS but consisted of 30 debtors who experienced financing installment defaults and 30 went smoothly. The process of collecting data uses a questionnaire containing questions about basic demographics, in addition to questions aimed at raising Islamic risk and religiosity preferences. In addition, the impact of external environmental characteristics is also estimated by using probit regression. Group-based financing, which is one of the objectives of reducing adverse selection, can have the opposite effect. Ineffective group roles for various reasons, contagion can be a trigger for moral hazard for other group members. The study found that in addition to religiosity, as an internal factor, the effectiveness of financing groups as a timely external factor of timely payment compliance also plays an important role.


Microfinance Institutions Sharia, Religiosity, Risk


Ashta, Arvind & Rosita de Selva (2012). Religious Practice and Microcredit: Literature Review and Research Direction. Postmodern Openings, 2(8): 33-44.

Baland, J.M., Somanathan, R., Wahhaj, Z. (2013). Repayment Incentives and the Distribution of Gains From Group Lending. Journal of Development Economics, 105: 131–139.

Banerjee, A.V. (2013). Microcredit Under the Microscope: What Have We Learned in the Past Two Decades, and What Do We Need to Know?. Annu. Rev. Econ, 5(1).

Besley, T., Coate, S. (1995). Group Lending, Repayment Incentives and Social Collateral. Journal of Development Economics, 46(1): 1–18.

Cressy, Robert (2000). Credit Rationing or Entrepreneurial Risk Aversion? An Alternative Explanation for the Evans and Jovanovic Finding, Economic Letters, 66(2): 235-240.

De Quidt, Jonathan., Fetzer, Thiemo. Ghatak, Maitreesh. (2016). Group Lending without Joint Liability. Journal of Development Economics, 121: 217–236.

De Meza, David, & David Webb (1990). Risk, Adverse Selection and Capital Market Failure. The Economic Journal, 100(399): 206-214.

Dutta, Dilip & Ihab Magableh (2006). A Socio-Economic Study of the Borrowing Process: The Case of Microentrepreneurs in Jordan. The University of Sydney School of Economics and Political Science, 1-20.

Feigenberg, B., Field, E., Pande, R. (2013). The Economic Returns to Social Interaction: Experimental Evidence from Microfinance. Review of Economic Studies, 80(4): 1459–1483.

Giné, X., Karlan, D.S. (2014). Group Versus Individual Liability: Short and Long Term Evidence from Philippine Microcredit Lending Groups. Journal of Development Economics, 107: 65–83.

Kodongo, Odongo., Kendi, Lilian, G. (2013). Individual Lending Versus Group Lending: An Evaluation with Kenya’s Microfinance Data. Review of Development Finance, (3): 99–108

Pearlman, S. (2012). Too Vulnerable for Microfinance? Risk and Vulnerability as Determinants of Microfinance Selection in Lima. Journal of Development Studies, 48(9): 1342-1359.

Setiawan, C., & Monita E.P. (2013). Non-Performing Financing and Bank Efficiency of Islamic Banks in Indonesia. Journal of Islamic Finance and Business Research, 2(1): 58–76.

Weill, J. & Podpiera, J. (2008). Bad Luck or Bad Management? Emerging Banking Market Experience. Journal of Financial Stability, 4: 135-155.

Stiglitz, J., & Andrew, W. (1981). Credit Rationing in Markets with Imperfect Information. The American Economic Review, 71(3): 393-410.

Stiglitz, Joseph. (1990). Peer Monitoring and Credit Markets. The World Bank Economic Review, 4(3): 351-366.

Vereshchagina, G., & Hugo, H. (2009). Risk Taking by Entrepreneurs. The American Economic Review, 99(5): 1808-1830.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.


View My Stats