A Double-Edged Sword: Diversity Within Religion and Market Emergence

1 May 2020


Shipeng Yan 

Published in Organization Science, May 2020 

Does religion foster entrepreneurship or constrain it? Religion plays an important role in the economy and society by shaping people's beliefs, values, and behaviours. Entrepreneurship, which is the formation of new organizations and markets, also affects economic growth and the progression of society. Dr Shipeng Yan, Assistant Professor in the Department of Management, addresses the impact of religion on entrepreneurship by examining the rise of investment funds under the influence of Islam, the third largest religion in the world.  

Islam is a complex belief system, with considerable internal diversity, due to the influence of historical, political, and military conflicts. This study uses an institutional logics perspective to capture this empirical reality. Through the analysis of Islamic investment fund markets from 22 countries between 1995 and 2010, Yan contends that the religious diversity within Islam is a double-edged sword for the growth of Islamic investment funds. On the one hand, the diversity fosters the supply of Islamic investment funds because conflicting groups within Islam compete to introduce novel products which they deem truly authentic to Islamic principles. This competition tends to be worse in a free market where entry barriers are lower and new products are more easily introduced. On the other, the diversity suppresses the demand for Islamic investment funds because investors are thwarted by the uncertainty and complexity of multiple conflicting Islamic interpretations. Yet, this tendency can be reduced, if a strong state comes in to harmonize those standards. 

This study holds important implications. Islam is the only major religion that has still been growing in terms of the number of adherents in recent years. Thus new forms of Islamic business are likely to play an increasingly important role in the development of the global economy.