Citation

Discussion Paper Details

Please find the details for DP8504 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Of Religion and Redemption: Evidence from Default on Islamic Loans

Author(s): Lieven Baele, Moazzam Farooq and Steven Ongena

Publication Date: August 2011

Keyword(s): Duration Analysis, Islamic Loans, Loan Default and Religion

Programme Area(s): Financial Economics

Abstract: Do religious beliefs affect real economic decisions? We investigate this fundamental question by comparing 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. The evidence comes from a variety of specifications that contain pertinent combinations of time-varying borrower, loan contract and bank characteristics, and time, borrower, bank and borrower*bank fixed effects. For the same borrower taking both conventional and Islamic loans from the same bank, the hazard rate on Islamic loans drops to one fifth the hazard 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8504

Bibliographic Reference

Baele, L, Farooq, M and Ongena, S. 2011. 'Of Religion and Redemption: Evidence from Default on Islamic Loans'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8504