Program and Development Research

Program and Development Research

Analysis of the Role of Trust in Reducing Financing Costs for Small Businesses from the Perspective of Islamic Banking

Document Type : Original Article

Authors
mohammad saeid panahi boroojerdi 1
ahmad ali rezaei 2
1 Department of Islamic Economics, Faculty of Economics, Allameh Tabatabaei University, Tehran, Iran
2 PhD student, Islamic Economics, Institute of Higher Education of Islamic Humanities, Al-Mustafa International University, Qom, Iran
10.22034/pbr.2025.537698.1563
Abstract
Abstract
Objectives: This study examines the role of trust in reducing financing costs for small businesses from the perspective of Islamic banking. Trust is a key factor in the financing process, and within Islamic banking systems, characterized by Shariah-compliant contracts such as Murabaha, its importance becomes more evident.
Methods: Data were collected from 55 Islamic banks across ten countries, including Iran, Indonesia, Malaysia, Saudi Arabia, the United Arab Emirates, Turkey, Pakistan, Egypt, Nigeria, and Bangladesh, comprising 850 observations from bank managers during the second half of 2024. The analysis was conducted using a probit regression model in EViews.
Results: The results reveal that trust has a negative and significant effect on Murabaha allocation, indicating that higher levels of trust reduce the likelihood of offering Murabaha contracts. In such cases, banks tend to adopt alternative financing instruments such as partnership or Mudarabah contracts, which involve lower risk. Furthermore, bank size shows a positive and significant impact, suggesting that larger banks, due to greater financial resources and stronger risk management capabilities, are more likely to provide Murabaha financing. Engagement with multiple banks also has a positive and significant effect on Murabaha allocation.
Conclusion: These findings underscore the role of trust as a catalyst for promoting alternative financing mechanisms while highlighting that larger banks exhibit a stronger propensity toward Murabaha, especially short-term contracts. The study recommends that Islamic banks enhance trust, leverage soft information, and improve transparency as strategic measures to create favorable financing conditions for small businesses.
Keywords
Trust
Financing Costs
Small Businesses
Islamic Banking
Subjects
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Program and Development Research
Volume 7, Issue 1 - Serial Number 25
Spring 2026
Pages 105-136