Farmers' perception and preference of Islamic Banking in Turkey

Abstract

PurposeThe purpose of this paper is to examine the factors that influence farmers' preference for the use of Islamic banks in Turkey and to investigate their knowledge level and perception about Islamic finance.Design/methodology/approachSurvey data used in this study is obtained by drawing a sample of 1902 farmers who are members of the Agricultural Credit Cooperatives Union (ACCU) from 37 provinces of Turkey. Pearson's Chi-square test is used to analyze the association between the demographic features of farmers, conventional bank usage and Islamic bank usage. Binary logistic regression model is used to estimate the factors influencing the preference for Islamic banks. Explanatory variables include knowledge on Islamic banking and finance, perception of compliance to religion, saving ability and cost concern along with the control variables of Islamic bank branch number in the region and age of respondent. Robustness check is conducted via alternative models using ordinary least squares (OLS) and logistic regression.FindingsLess than 10% of the participant farmers use Islamic banks and 59% declare they know nothing about Islamic banking. Age, education level, income level, nonagricultural income level, saving ability, duration of working in agriculture, land size and region are significantly related to farmers' preference of using Islamic banks. Knowledge level, perception of religious compliance, saving ability and cost concern are statistically significant factors that influence the probability of using Islamic banks.Research limitations/implicationsThis study does not include the analysis of the relationship between being religious and using Islamic banks because questions related to the assessment of religious practice were excluded due to the ACCU's sensitivity to investigate personal beliefs. Therefore, future studies can expand the scope of this research by investigating religiousness. The sample is chosen from the ACCU members who are already benefiting from a formal source of credit; therefore, the results should not be attributed to all farmers.Practical implicationsIslamic banks and microfinance institutions' further engagement in the agricultural sector and ACCU's implementation of Islamic finance instruments.Social implicationsIslamic banks' further diversification in the agricultural sector and ACCU's implementation of Islamic finance instruments.Originality/valueTo the best of the authors' knowledge, this paper is the first to investigate the farmers' perception and preference of Islamic banking in Turkey. The sample size of 1902 is much larger and geographically diversified compared to studies in agricultural finance. This study will be valuable for the agricultural finance empirical studies in Turkey as well as an important addition to the emerging literature on Islamic finance.