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Of religion and redemption: evidence from default on islamic loans


Ongena, Steven; Baele, Lieven; Farooq, Moazzam (2014). Of religion and redemption: evidence from default on islamic loans. Journal of Banking and Finance, 44:141-159.

Abstract

We compare default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust evidence that the default rate on Islamic loans is less than half the default rate on conventional loans. Islamic loans are less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default.

Abstract

We compare default rates on conventional and Islamic loans using a comprehensive monthly dataset from Pakistan that follows more than 150,000 loans over the period 2006:04 to 2008:12. We find robust evidence that the default rate on Islamic loans is less than half the default rate on conventional loans. Islamic loans are less likely to default during Ramadan and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default.

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19 citations in Web of Science®
25 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2014
Deposited On:15 Oct 2014 11:24
Last Modified:05 Apr 2016 18:24
Publisher:Elsevier
ISSN:0378-4266
Publisher DOI:https://doi.org/10.1016/j.jbankfin.2014.03.005
Other Identification Number:merlin-id:9285

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