Islamic finance in Europe (165)

Continuation

4.3 DEFAULTS ON ISLAMIC FINANCING

(A) CONJECTURES

In many countries, the most popular Islamic financial products are functionally identical to conventional loan products.

Does this necessarily mean that their default rates are similar?

Reasonable conjectures can be formed regarding:

-      the motivation for preferring one form of credit over another

-      and the expected default rates associated with the choice made.

Discussion based on Baele, Farooq and Ongena, 2012

The existence of Islamic banking per se is based on religion.

For borrowers taking out an Islamic financing this is plainly a real economic decision.

So to speak, “putting your money where your mouth is”.

From the research paper of European Central Bank

(Authors: F.Mauro, P.Caristi, S.Couderc, A.D.Maria, L.Ho, B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)