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Islamic Quasi Equity (Debt) Instruments And The Challenges Of Balance Sheet Hedging: An Exploratory Analysis

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  • KHAN, TARIQULLAH

    () (Islamic Research & Training Institute)

Abstract

Debt creation by deferred trading is a predominant form of Islamic financing, but sale of debts through conventional procedures is prohibited in Islamic finance. Therefore, due to the existence of the markup price risk, Islamic financial institutions are not able to provide funds for longer-term periods. This paper explores Islamic quasi equity (debt) instruments and argues that such instruments can empower the Islamic financial system to manage important risks and enhance the provision of long-term funds. The premises discussed are based on the sale of debts against real assets, which facilitates embedded options and convertible Islamic financial instruments. It is expected that the premises discussed could be useful in the development of a fully-fledged Islamic financial market.

Suggested Citation

  • Khan, Tariqullah, 2000. "Islamic Quasi Equity (Debt) Instruments And The Challenges Of Balance Sheet Hedging: An Exploratory Analysis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 7, pages 1-31.
  • Handle: RePEc:ris:isecst:0085
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    1. Merton, Robert C., 1995. "Financial innovation and the management and regulation of financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 461-481, June.
    2. Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September.
    3. Asquith, Paul, 1995. " Convertible Bonds Are Not Called Late," Journal of Finance, American Finance Association, vol. 50(4), pages 1275-1289, September.
    4. International Monetary Fund, 1998. "Monetary Operations and Government Debt Management Under Islamic Banking," IMF Working Papers 98/144, International Monetary Fund.
    5. repec:ris:isecst:0135 is not listed on IDEAS
    6. Presley, John R & Sessions, John G, 1994. "Islamic Economics: The Emergence of a New Paradigm," Economic Journal, Royal Economic Society, vol. 104(424), pages 584-596, May.
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