To read this content please select one of the options below:

Mitigating asymmetric information to enhance MSME Islamic financial inclusion by Islamic banks in Indonesia

Adi Saifurrahman (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)
Salina H.J. Kassim (Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 19 December 2022




This study aims to explore and analyse the credit risk assessment procedure conducted by the Indonesian Islamic banks to address the issue of asymmetric information among their micro-, small- and medium-sized enterprise (MSME) clients. This study also investigates the gaps in credit risk assessment procedures by comparing Islamic banks’ practices and presenting several recommendations to reinforce the credit risk evaluation procedures and eventually promote more inclusion of the MSME segment into the Islamic financial services.


This paper adopts a qualitative method by implementing a multi-case study research strategy. The data were gathered primarily through an interview approach by incorporating purposive uncontrolled quota sampling.


The result of this study implies that the Islamic banks in Indonesia have their own unique approaches and strategies in assessing the credit risk and have several similarities in performing their evaluation procedures for the MSME. Despite seemingly adequate approaches and measures taken by the Islamic banks to eliminate the asymmetric information problem, the study identifies several gaps that occur within the Islamic banks’ methods of credit risk assessment.

Research limitations/implications

Since this study focuses on Indonesia and emphasises the two segments of Islamic banks, which consist of Islamic commercial and rural banks, in performing the MSME credit risk assessment; therefore, the findings of this study were limited around the observed Islamic banks within the MSME segment purview.

Practical implications

By referring to the recommendations as proposed by this paper, four implications could be expected from adopting these respective recommendations, among others: more effective evaluation procedures for the MSME, provision of a clear path and more efficient approach to assess the MSME units, lower financing cost and increase the confidence of Islamic banking industry in disbursing more financing to the MSME sector. This mechanism will potentially improve Islamic financial inclusion for the MSME due to the greater access to financial services; hence, the sector could contribute even more to Indonesia’s growing economy.


By incorporating a multi-case study among Indonesian Islamic banks pertaining to their methods in evaluating MSME customers, this study identifies several gaps affecting the effectiveness of MSME credit risk assessment. Furthermore, this study also presents a proposed framework to address these gaps accordingly by suggesting the salient strategies to minimise the issues of information asymmetry and enhance the MSME credit risk assessment procedure.



The previous version of this paper was presented at the International Conference on Islamic Financial Literacy 2021 (ICiFIL 2021) that was conducted in International Islamic University Malaysia (IIUM) – Kuala Lumpur on 7-8th July 2021. So far, to the authors’ knowledge, there is no information from the conference organiser to publish their whole conference proceeding, and this paper has not been published in any journal and is not under consideration by any other publication.


Saifurrahman, A. and Kassim, S.H.J. (2022), "Mitigating asymmetric information to enhance MSME Islamic financial inclusion by Islamic banks in Indonesia", Qualitative Research in Financial Markets, Vol. ahead-of-print No. ahead-of-print.



Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

Related articles