Does religiosity and trust affect financing activities? Evidence from Indonesia.

Islam religiosity and trust are inextricable linked since Islamic teachings promote trustworthy behaviour. Existing literature has shown that perceived trustworthiness of a party has positive impacts on the business-to-business relationship, especially in financing relationships. So far, however, there has been limited discussion on the role of religiosity and trust to support financing activities in the Islamic context. Empirical paper number 1 examines the impact of Islam religiosity on financing availability and non- performing financing in both Islamic and conventional banks. I contribute to the literature by using more suitable Islam religiosity proxies at province level, namely Islamic school, Islamic seminary school, mosque, Hajj application, and halal certificate and by finding that Islamic and conventional banks in stronger Islam religiosity areas provide more financing and have less non-performing financing. Empirical paper number 2 explores the magnitude of values-based trust vis-à-vis competence-based trust on financing availability in the context of Islamic culture, an issue that has limited discussion in current literature. I find that values-based trust plays stronger role than competence-based trust in Islamic culture. Finally, existing literature on trust and bank lending has not taken into account the characteristics of financing products in their studies. The third empirical paper discusses the role of trust on financing availability in three different Islamic financing products, i.e., Murabaha, Ijara, and Profit-loss sharing. I find that values-based trust is more important than competence-based trust in Ijara, but competence-based trust plays stronger role than values-based trust in both Murabaha and Profit-loss sharing.