Comparative Default Risks with Automobile Lease Financing Through Conventional and Islamic Banks
Author(s)
Nazia Parveen Gill , Adnan Ahmad , Muhammad Jehangir , Iqbal , Fazal Haleem ,
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Abstract
In this study, it is investigated that how Conventional or Islamic lease has lower default risk in market. Primary data, it was collected from Khyber’s Banks and both quantitative and qualitative techniques were used for the analyses of occurrence of default risk. Conventional Lease found to be more likely to default than Islamic Lease. The reason for this is inflexibility, hard terms, uncertain instalment amounts, and sole discretionary power of bank to change interest rate without asking the customers. Specifically, age and income tend to reduce the risk of default while price and interest rate increase the risk of being defaulted. Moreover, automobile type and unemployment show a higher risk of default. The paper not only contribute to the existing literature but also could be helpful to improve the bank’s leasing products, reducing default risk and contribute to the bottom line of the banks.
Keywords
Islamic Lease, Conventional Lease, Default Risk, Ijara Wa-Iqtina, Islamic Finance, Ijara
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