Abstract
Low utilization of credit in developing countries may be partially due to societal norms. We consider one such case in Jordan and compare the demand for a new, sharia-compliant product to a non-compliant product. To comply with the Islamic prohibition on paying or receiving interest, the sharia-compliant product uses a bank fee rather than interest payment structure, while keeping the economics of the product the same as a comparable conventional loan. We find that in this largely Muslim country, consumers offered a sharia-compliant loan increase their application rate from 18% to 22%. We also randomly varied the price of the sharia-compliant product, and find that the less religious individuals in our sample are twice as elastic with respect to price as those who are more religious. We find no evidence of differences between those who apply for the conventional loan and those that apply for the sharia-compliant loan on observable demographics, suggesting that this new product successfully increases utilization of formal financial services without necessarily pulling in more risky individuals.