Of Religion and Redemption: Evidence from Default on Islamic Loans (Replaces EBC DP 2010-032)

L. Baele, M. Farooq, S. Ongena

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages72
Volume2012-008
Publication statusPublished - 2012

Publication series

NameEBC Discussion Paper
Volume2012-008

Keywords

  • Loan Default
  • Islamic Loans
  • Religion
  • Duration Analysis

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