God, Government and Outsiders: The Influence of Religious Beliefs on Depositor Behavior in an Emerging Market.

Abstract

This paper provides evidence that religious beliefs can have a significant impact on individual financial choices. Using proprietary panel data on the distribution of bank deposits across all commercial banks in Pakistan over a 33-month period, I find that Islamic banks enjoy substantially higher deposit growth rates than other banks and that this difference persists even after various other profit-maximizing determinants of bank demand are taken into account. I also find that while a recent financial crisis triggered a fall in deposit growth rates at all other types of banks, it had a positive impact on the religious banks despite the fact that these banks tend to have lower credit scores than other conventional banks. Together, these results reflect some of the complex factors influencing individual financial decisions and indicate that at least in the context of a religiously motivated population it makes economic sense to focus on the growth of institutional forms that reflect these preferences.

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