Of religion and redemption: Evidence from default on Islamic loans

L.T.M. Baele, Moazzam Farooq, S.R.G. Ongena

Research output: Contribution to journalArticleScientificpeer-review

97 Citations (Scopus)
233 Downloads (Pure)


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
Pages (from-to)141-159
JournalJournal of Banking and Finance
Publication statusPublished - Jul 2014


  • Loan Default
  • Islamic Loans
  • Religion
  • Duration Analysis


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