Moral values or competence : Which is more critical for Islamic financing activities?
(2026) In International Review of Financial Analysis 117.- Abstract
Trust is widely recognised as an important determinant of lending relationships, yet existing finance literature typically treats trust as a single construct and rarely examines how different trust dimensions operate across financial contracts with distinct risk structures. Our research addresses this gap by distinguishing between competence-based trust (perceived managerial capability) and value-based trust (perceived integrity and benevolence). We examine how these dimensions influence financing decisions across three major Islamic financing products (Murabaha , Ijara and profit–loss sharing), using survey data from Islamic bank managers in Indonesia. The results show that trust operates as a contract-sensitive screening mechanism.... (More)
Trust is widely recognised as an important determinant of lending relationships, yet existing finance literature typically treats trust as a single construct and rarely examines how different trust dimensions operate across financial contracts with distinct risk structures. Our research addresses this gap by distinguishing between competence-based trust (perceived managerial capability) and value-based trust (perceived integrity and benevolence). We examine how these dimensions influence financing decisions across three major Islamic financing products (Murabaha , Ijara and profit–loss sharing), using survey data from Islamic bank managers in Indonesia. The results show that trust operates as a contract-sensitive screening mechanism. Competence-based trust has a stronger influence in Murabaha and PLS financing, where banks are primarily exposed to repayment and performance risk, whereas value-based trust is more influential in Ijara , where banks retain asset ownership and are more exposed to behavioural and asset misuse risk. These findings suggest that lenders rely on different trust dimensions depending on the dominant risk embedded in each financing contract. This study contributes to financial intermediation and Islamic finance literature by showing that trust is multidimensional and contract-contingent rather than purely relational. The findings also provide practical implications for Islamic banks and policymakers by highlighting the role of trust-based soft information in improving SME financing decisions.
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- author
- Wijaya, Ibrahim Fatwa ; Hassan, M. Kabir and Moro, Andrea LU
- organization
- publishing date
- 2026-09
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Competence, Islamic bank, Moral values, Relationship lending, Small business, Trust
- in
- International Review of Financial Analysis
- volume
- 117
- article number
- 105254
- publisher
- Elsevier
- external identifiers
-
- scopus:105041262920
- ISSN
- 1057-5219
- DOI
- 10.1016/j.irfa.2026.105254
- language
- English
- LU publication?
- yes
- additional info
- Publisher Copyright: © 2026 Elsevier Inc.
- id
- 6a8c11b7-90f3-4b4a-9240-92d5649616d9
- date added to LUP
- 2026-07-21 11:57:21
- date last changed
- 2026-07-21 11:57:56
@article{6a8c11b7-90f3-4b4a-9240-92d5649616d9,
abstract = {{<p>Trust is widely recognised as an important determinant of lending relationships, yet existing finance literature typically treats trust as a single construct and rarely examines how different trust dimensions operate across financial contracts with distinct risk structures. Our research addresses this gap by distinguishing between competence-based trust (perceived managerial capability) and value-based trust (perceived integrity and benevolence). We examine how these dimensions influence financing decisions across three major Islamic financing products (Murabaha , Ijara and profit–loss sharing), using survey data from Islamic bank managers in Indonesia. The results show that trust operates as a contract-sensitive screening mechanism. Competence-based trust has a stronger influence in Murabaha and PLS financing, where banks are primarily exposed to repayment and performance risk, whereas value-based trust is more influential in Ijara , where banks retain asset ownership and are more exposed to behavioural and asset misuse risk. These findings suggest that lenders rely on different trust dimensions depending on the dominant risk embedded in each financing contract. This study contributes to financial intermediation and Islamic finance literature by showing that trust is multidimensional and contract-contingent rather than purely relational. The findings also provide practical implications for Islamic banks and policymakers by highlighting the role of trust-based soft information in improving SME financing decisions.</p>}},
author = {{Wijaya, Ibrahim Fatwa and Hassan, M. Kabir and Moro, Andrea}},
issn = {{1057-5219}},
keywords = {{Competence; Islamic bank; Moral values; Relationship lending; Small business; Trust}},
language = {{eng}},
publisher = {{Elsevier}},
series = {{International Review of Financial Analysis}},
title = {{Moral values or competence : Which is more critical for Islamic financing activities?}},
url = {{http://dx.doi.org/10.1016/j.irfa.2026.105254}},
doi = {{10.1016/j.irfa.2026.105254}},
volume = {{117}},
year = {{2026}},
}