Religion, Social Desirability Bias and Financial Inclusion : Evidence from a List Experiment on Islamic (Micro-)Finance

In recent years, academic and policy research has placed increasing focus on the study of the attitudes of the Muslim poor towards Islamic and non-Islamic (micro-)finance to inform financial inclusion strategies. Survey questions are a common way to measure these attitudes and have been included into large-scale surveys such as the Global Findex. However, survey-based measures that ask about non-Islamic finance in an Islamic context may be affected by social desirability bias. In this paper, we propose an effective and scalable solution to this issue. We conduct the first list experiment designed to measure attitudes towards the usage of non-Islamic financial products and services, with 2,145 poor Muslims from Multan, Pakistan. Our list experiment uncovers that 37 percent of our sample use non-Islamic finance, almost twice as many as respond affirmatively to a similar direct survey question. Using our rich survey data on demographics, socio-economic factors and religiosity, we are further able to document substantial heterogeneity in the usage of non-Islamic finance and in the magnitudes of underreporting this usage in the direct survey question. We conclude by discussing the significance of our results in terms of (policy) implications and for the measurement of the demand for Islamic finance