Islam, Islamic Banking and Entrepreneurship: Evidence from OIC Member Countries

Abstract

There is a view that Islam hinders entrepreneurship in Muslim societies in general. Unfortunately, there is little empirical work testing the negative effect of Islam as a religion on entrepreneurship. In an attempt to fill this gap, this study aims to reassess this effect in OIC member countries. Specifically, the aim is to assess whether Islam is an impediment to entrepreneurship in these countries and whether the presence of Islamic banking institutions in these countries strengthens or moderates such a relationship. Using multivariate regression analysis, the results indicate that there is indeed a negative relationship between Islam and entrepreneurship in OIC countries where Islamic banking is absent. But, this relationship does not hold where Islamic banking exists. Indeed, the presence of Islamic banks in countries where Islam is the state religion cancels out any negative effect of Islam and has a positive effect on entrepreneurship in the country concerned. The results of this study thus reopen the debate on whether Islam as a religion discourages competition, innovation, entrepreneurship and economic development compared to other religions.