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Measuring what people actually do, compared with what they say they do

Research measuring poor Pakistanis actual use of conventional finance, overcoming the problems "social desirability bias" causes surveys.

Posted 10 September 2023

Many of my monthly "Islamic Finance News" columns are sparked by comments from readers. The August column was a particularly good example, after I was sent a recent research paper that I had not come across before.

You can read it below.

Evidence of Pakistani Muslims’ real usage of conventional finance

When reading “A look at the USA’s first Shariah compliant bank” in the 3 May 2023 issue of Islamic Finance News, a Muslim economist was particularly struck by my concluding point.

I had said that American Muslims’ “effective demand” for Islamic banking was low, as it was amongst British and German Muslims. By “effective demand”, I meant demand expressed by action, rather than by just saying that they wanted Islamic banking – “expressed demand.”

My reader sent me a 13-page academic paper published in February 2023 by Elsevier’s “Journal of Behavioral and Experimental Finance.” The paper is “Religion, social desirability bias and financial inclusion: Evidence from a list experiment on Islamic (micro-)finance” by Syedah Ahmad, Robert Lensink, and Annika Mueller, Department of Economics, Econometrics and Finance, University of Groningen, The Netherlands.

Many survey problems, such as finding a representative sample to interview, are well known. However, one problem that receives insufficient discussion is “Social desirability bias.” In every society, there are some questions which respondents are reluctant to answer honestly, even if given anonymity.

I would expect social desirability bias to significantly affect what people are willing to say about Islamic finance. If someone is regularly told by their religious leaders that usage of conventional finance will send them to Hell, it is likely to affect their survey response!

The authors write:

“In this paper, we propose a possible 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.”

The paper explains in simple terms what a list experiment is.

“List experiments are designed to provide the data necessary to estimate the proportion of respondents in the population who agree with a sensitive statement.

They do so by presenting an identical set of non-sensitive statements to (randomly assigned) treatment and control groups of respondents, with the treatment group being shown an additional sensitive statement, which in our case concerned non-Islamic finance.

The key principle behind a list experiment is that respondents need to report only the number of statements that they agree with, which guarantees a higher level of anonymity than direct survey questions and makes respondents more likely to answer truthfully.”

If the treatment group and the control group are well matched, they should agree with the same number of non-sensitive statements. Accordingly, any difference in total responses arises from the inclusion of the sensitive statement in the list presented to the treatment group.

The authors found that approximately 37% of the sample (poor Muslims in Multan) used conventional finance as described in the statement:

‘‘I use formal or informal non-Islamic financial products or services from time to time, such as bringing jewelry or a vehicle to a pawn shop and retrieving it later by paying interest on the loan.’’

This 37% compares with only about half that number who will say that they use conventional finance when responding to surveys directly asking them. This shows the very significant impact of social desirability bias.

I expect that surveys conducted in the UK or USA would show a similar, but weaker, effect because British or American Muslims should face lower social pressures from other Muslims than do Pakistani Muslims.

Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.


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