Of Religion and Redemption: Evidence from Default on Islamic Loans

By Lieven Baele, Moazzam Farooq, Steven R. G. Ongena. 2014

302 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/a027ec6c5cf23ca27abe166b8bb7a1476934b242

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Citations in the corpus

Comparative credit risk in Islamic and conventional bank (2015, unknown): “In addition, religiosity is one factor that potentially lowers the credit risk of Islamic banks, in that because Islamic banks operate their business according to Shariah, only the highly religiously motivated may be involved in Islamic banking, and these may tend to default less (Baele et al., 2014”
Risk in Islamic banking and corporate governance (2018, background): “…of non-performing loans to gross loans is 2.231% lower in Islamic banks compared to their conventional counterparts.16 This finding may be attributed to religious orientation of Islamic banks' borrowers who consider defaulting on loans as an immoral act (Abedifar et al., 2013; Baele et al., 2014).”
Finance-Growth Nexus and Dual-Banking Systems: Relative Importance of Islamic Banks (2016, background): “3 Izzeldin, 2014), loan default rates (Baele et al., 2014), mutual funds (Abdelsalam et al.”
An Overview of Islamic Finance (2015, background): “In contrast, Baele, Farooq, and Ongena (2012) find that loans from Islamic banks are less likely to be overdue or in default, suggesting that individual and systemic risk from loan defaults may be less likely to materialize in Islamic banking.”
Exploring the Nexus Between Human Capital, Corporate Governance and Performance: Evidence from Islamic Banks (2017, unknown): “…(Bourkhis and Nabi, 2013), valuation (Elnahass et al. , 2014), risk (Abedifar et al. , 2013), relationship banking (Ongena and Şendeniz-Yüncü, 2011), mutual funds (Abdelsalam et al. , 2014), mortgage loans (Ebrahim, 2009) and other risk dimensions such as loan default rates (Baele et al. , 2014).”
A Survival Analysis of Islamic and Conventional Banks (2016, unknown): “13 accountholders and the relatively low default rates of Islamic borrowers that arises possibly from their religious beliefs (Baele et al. 2014).”
Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research (2015, unknown): “Fewer studies focus on the determinants of bank profitability (Hassan and Bashir, 2003, Rashwan, 2010) and here there is some evidence that better capitalised and loaned-out Islamic banks are more profitable. A study by Gheeraeart and Weill (2014) covering 70 countries, interestingly finds a non-lin”
Does Religion Affect Economic Growth and Happiness? Evidence from Ramadan* (2015, unknown): “In addition, Leiper, Molla, and Molla (2003) summarize the research as finding symptoms such as irritability, headaches, sleep deprivation, and lassitude being commonly reported – although with few major health problems.”