The implication of using profit and loss sharing modes of finance in the banking system, with a particular reference to equity participation (partnership) method in Sudan
Purpose – The purpose of this paper is to evaluate the performance of musharakah (equity participation) in terms of profitability and risk; to investigate musharakah management to recognise the obstacles and factors influencing decision-making and to investigate the implications of using musharakah mode of finance. Design/methodology/approach – Data from Sudan, which fully adhere to interest-free principles of finance, will be used. Part of the data source is the Sudanese banks’ balance sheets and annual reports, which provide bank level data for all Sudanese banks for the period 1990-2004. Initially, some descriptive analysis is provided. The concentration of musharakah in the Sudanese Islamic banks each year is provided so as to give an indication of the influence of musharakah. The second part of the data is survey data collected from nine banks. The survey has been distributed and collected from staff members of investment departments at the Sudanese banks. Findings – The results show the high preference of musharakah among banks’ staff compared with other modes of finance. The results indicate that the lack of knowledgeable bankers in selecting, evaluating and managing profitable projects is a significant cause for the lack of profit and loss (PLS) projects. The results show the high profitability and risk performance. The paper has exposed the key issues involved in bad debt and general risk degree for musharakah. Originality/value – The advantages and disadvantages of using musharakah have been discussed, obstacles for the scheme have identified, and the performance of musharakah has been evaluated. The paper should contribute to a better understanding of the implications of using PLS modes of finance, particularly musharakah
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 24 (2008) Issue (Month): 3 (July) Pages: 182-206 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF