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Of Religion and Redemption: Evidence from Default on Islamic Loans (Replaced by CentER DP 2012-014)

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Author Info

  • Baele, L.
  • Farooq, M.
  • Ongena, S.

    (Tilburg University, Center for Economic Research)

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.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-136.

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Date of creation: 2010
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Handle: RePEc:dgr:kubcen:2010136

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Web page: http://center.uvt.nl

Related research

Keywords: Loan Default; Islamic Loans; Religion; Duration Analysis;

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References

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  1. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer, vol. 38(2), pages 95-113, December.
  2. Mariani Abdul-Majid & David Saal & Giuliana Battisti, 2010. "Efficiency in Islamic and conventional banking: an international comparison," Journal of Productivity Analysis, Springer, vol. 34(1), pages 25-43, August.
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Cited by:
  1. Zaheer, S. & Ongena, S. & Wijnbergen, S.J.G. van, 2011. "The Transmission of Monetary Policy through Conventional and Islamic Banks," Discussion Paper 2011-078, Tilburg University, Center for Economic Research.
  2. Yousfi, Ouidad, 2011. "Islamic private equity: what is new?," MPRA Paper 35952, University Library of Munich, Germany.
  3. Christa Hainz, 2011. "Measuring Information Sharing in Credit Markets," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(1), pages 21-27, 05.

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