Building trust: evidence from small business financing in Indonesia

Abstract We discuss the trust-building process as well as trust violation and distrust in financing for small businesses at Islamic and conventional banks, a topic that receives little attention in the literature. We interview managers of Islamic and conventional banks in Indonesia. We find that the trust-building process at Islamic and conventional banks financing relationships are qualitatively similar. Specifically, this means that: (1) the sources of soft information for both types of banks include the borrowers’ neighbors, suppliers, and customers; (2) bank managers are interested in exploring negative information on small business managers from third parties; (3) trust violation is caused mainly by isolated events, but distrust arises mainly because of values incongruence between bank managers and small business managers, primarily due to the small business managers’ dishonesty or lack of integrity (values-based trust); and (4) the dimensions of trustworthiness that bank managers want to explore are benevolence, integrity, honesty, openness, and ability.