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Of religion and redemption: Evidence from default on Islamic loans

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  • Baele, Lieven
  • Farooq, Moazzam
  • Ongena, Steven

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 of Islamic loans is less than half the default rate of 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.

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  • Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2014. "Of religion and redemption: Evidence from default on Islamic loans," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 141-159.
  • Handle: RePEc:eee:jbfina:v:44:y:2014:i:c:p:141-159
    DOI: 10.1016/j.jbankfin.2014.03.005
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    More about this item

    Keywords

    Loan default; Islamic loans; Religion; Duration analysis;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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