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Of Religion and Redemption: Evidence from Default on Islamic LoansLieven BaeleTilburg University - Department of Finance Moazzam FarooqTilburg University - CentER, European Banking Center (EBC) Steven OngenaTilburg University - CentER, European Banking Center (EBC); Centre for Economic Policy Research (CEPR) June 3, 2012 CentER Discussion Paper Series No. 2012-014 European Banking Center Discussion Paper No. 2012-008 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.
Number of Pages in PDF File: 71 Keywords: Loan Default, Islamic Loans, Religion, Duration Analysis JEL Classification: A13, G21, G32, G33, Z12 working papers seriesDate posted: January 17, 2011 ; Last revised: June 5, 2012Suggested CitationContact Information
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