Of Religion and Redemption: Evidence from Default on Islamic Loans
CentER Discussion Paper Series No. 2012-014
66 Pages Posted: 17 Jan 2011 Last revised: 19 Feb 2014
Date Written: February 19, 2014
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.
Keywords: Loan Default, Islamic Loans, Religion, Duration Analysis
JEL Classification: A13, G21, G32, G33, Z12
Suggested Citation: Suggested Citation