Of Religion and Redemption: Evidence from Default on Islamic Loans (Replaced by EBC DP 2012-008)

L. Baele, M. Farooq, S. Ongena

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Abstract

We study 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 hazard rate on Islamic loans is less than half the hazard rate on conventional loans. Across duration models we include a variety of loan contract, borrower, and bank characteristics, where possible combined with time, borrower, bank and/or borrower*bank fixed effects. In big cities Islamic loans default less likely if the share of religious parties increases, suggesting that religious motivation may determine loan default.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages46
Volume2010-32
Publication statusPublished - 2010

Publication series

NameEBC Discussion Paper
Volume2010-32

Keywords

  • Loan Default
  • Islamic Loans
  • Religion
  • Duration Analysis

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