“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis

Paper Info
Page count 5
Word count 1399
Read time 5 min
Topic Culture
Type Annotated Bibliography
Language 🇺🇸 US

Key Research Question

In their article, Mertzanis (2017) aimed to answer the question of what role social and cultural factors play in determining Islamic firms’ access to financial resources. As related to this research question, the researcher emphasized the role of family ties as a relevant cultural component. Having access to financial resources is considered to be a crucial component in financial services’ absorption. Such an assumption of the study is reliant on the relevant empirical evidence suggesting a robust and significant correlation between financial depth and economic growth. Besides, financial depth could potentially reduce income inequality, which is an essential factor as related to family ties in the Islamic setting.

Values, traditions, and structures that are connected to the links between parents and children, as well as their loyalty to one another, is both notable and interesting channel through which the history of Islamic society can explain the functioning and the financial behavior of institutions. Family ties and trusting connections between family members have long served as a framework of financial provision, thus influencing the perceptions of firms as to how they should approach the functioning of the corporate financing external financial sector. The research is necessary because it focused on the Islamic country context, which has been heavily reliant on family ties and heritage business development. Moreover, due to the diverse nature of Islamic countries and the observed differences in access to finance, there is a possibility of studying the constellation of Islamic countries as to their influence to finance, including highlights as to remarkable differences between them. Overall, the research is an essential contribution to the body of available research as to how firms’ financial performance can be constrained. For the first time in literature, the study concerns the role of family connections in shaping firms’ access to financial services.

Research Question Importance

The importance of the research question is tied to the study concern that developing countries and the different cultures inherent to them will have different attitudes toward finance. As cited by the author, the Global Financial Development Report stated that around “70% of the adult population in modern emerging economies still have no access to basic financial services, which limits their potential at creating profitable businesses” (Mertzanis, 2017, p. 2). It is notable that around 700 million of the planet’s poor live in mainly Muslim-populated states (Mertzanis, 2017). These findings suggest that the setting in which populations are forced to develop is characterized by the difference and complexity of often opposing traditional and Islamic financial tools and services.

The study sheds light on the Islamic environment’s peculiarities, thus underlining the importance of understanding how it influences financial performance. The research is relevant because of the conventions of financial performance that are inherent to the Western world. The religious and normative characteristics of the Islamic faith often goes against the traditional economic assumptions that rational and profit-maximization-oriented entities pursue. In contrast to the conventional approach to finance, Islam suggests that financial affairs should continuously go hand-in-hand with the social, religious, and political aspects of life. Therefore, the study question offers a practical perspective on how the unique Islamic view transforms into a variety of alternative processes that may seem strange or counterproductive from the outside view.

Notably, the compliance with the Sharia law imposes a series of obligations for entities engaging in financial interactions, varying from the banning of some of companies’ activities to the imposition of the rules of almsgiving. Muslims are often required to pay zakat, which is a tax on wealth and income since it is believed to purify an individual as well as increase and bless the remainder of their wealth. Therefore, Islamic social norms have a significant influence on the behavior of financial institutions because individuals working in them share the same strong values of morality and high religious homogeneity.

In the Islamic world, financial intermediation can get the necessary level of understanding when referencing certain social norms, and the research aimed to illustrate how such models would impact financial performance. Besides, the scholar put forth the objective of showing how the compliance with the Sharia law would coexist with the different cultural attitudes within the large population with varied social cultures and divergent cultures, including the religious mix. The study is vital for contributing to the ongoing debate regarding the correct classification of companies as between financially limited or unlimited by the non-economic conditions, thereby involving behavior-related elements into the analysis. The financial institutions, thus, may take special roles within the varied social norms regarding financial contracting. Overall, the connections between the sociopolitical and religious climate in Muslim countries were expected to influence the way in which the economic affairs play out as well as how the Islamic policies either improve or limit the access of the population to finance.

Nature and Source of Data Used

The primary source of data used in the study is the World Bank’s Enterprise Surveys (ES), which is an ongoing project taking place since 2005 involving the collection of both objective data on the individual experiences of firms and the setting in which they operate. The surveys make it possible to connect the performance of firms as well as other relevant qualities with the business environment at the same time with having access to the limitations of the growth of the private sector as well as the process of job creation in a particular economy. The importance of the data used for the research is composed of representative randomly-selected samples of companies operating in the service and manufacturing sectors, such as construction, wholesale and retail, Information Technologies, transportation, and so on. The data is acquired from the frames of sampling that are being evaluated at the beginning of every new project.

Sample of data used for the analysis of the study included forty-two Islamic countries and more than thirty-six thousand firms, included in the ES in the 2006-2014 period. The countries were selected based on their participation in the Organization of Islamic Cooperation, and for the purpose of reaching a more open perspective, the entire sample was differentiated into high- and low-income states on the mean level of their Gross Domestic Product per capita. In the study, ACCESS was the dependent variable, reflecting the perception of firms regarding their financial constraints. FAMTIES was the independent variable in the research, signifying the strength of family values. Furthermore, several country-specific variables were used to control the influence of different quantitative and qualitative factors. Such control variables are essential for the study because they allow for the capturing of unseen differences between states and are included to consider any of the spurious relationships as well as to effectively measure the influence of family links on any of the single company-associated variables.


In order for the researcher to isolate the influence of connections between family members on accessing financial resources, a multivariate analysis (MVA) based on relevant evidence controls for two variables was performed. These variables included country-specific characteristics as well as firm-related factors. The factors that related to firms specifically were selected on the basis of the existing justifications in theoretical knowledge. Importantly, since data relied mainly on small and medium-sized organizations, which creates the core of the countries’ economies. In its essence, multivariate analysis is a methodology employed to find patterns and connections between numerous variables at the same time. Usually, researchers use MVA for the purpose of addressing situations in which several measurements are made on every unit of an experiment, and the connections between such measures and their structures are important.

Because the dependent variable was also categorical, the researcher also used an ordered profit model to estimate the regression. It was assumed that the disturbance parameter would follow a normal distribution, which called for the use of the standard maximum likelihood estimation. In the analysis of data, clustered errors were allowed to take place because omitted country characteristics in the data had the potential of causing error terms for firms within countries. With the help of multivariate analysis, it was possible to prove the hypothesis that family ties would be significant and notable predictors of companies’ access to financial resources in Islamic countries since a statistically significant relationship was found. The results offer a new insight into the part that social institutions and non-financial cultural characteristics play when it comes to predicting financial limitations that may occur in Islamic firms.


Mertzanis, C. (2017). Family ties and access to finance in an Islamic environment. Journal of International Financial Markets, Institutions & Money, 48, 1-24.

Cite this paper


EssaysInCollege. (2022, May 24). “Family Ties and Access to Finance in an Islamic Environment” by Mertzanis. Retrieved from https://essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/


EssaysInCollege. (2022, May 24). “Family Ties and Access to Finance in an Islamic Environment” by Mertzanis. https://essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/

Work Cited

"“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis." EssaysInCollege, 24 May 2022, essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/.


EssaysInCollege. (2022) '“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis'. 24 May.


EssaysInCollege. 2022. "“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis." May 24, 2022. https://essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/.

1. EssaysInCollege. "“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis." May 24, 2022. https://essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/.


EssaysInCollege. "“Family Ties and Access to Finance in an Islamic Environment” by Mertzanis." May 24, 2022. https://essaysincollege.com/family-ties-and-access-to-finance-in-an-islamic-environment-by-mertzanis/.