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The Economics of Islamic Finance and Securitization


  • Andreas Jobst


Islamic lending transactions are governed by the precepts of the shariah, which bans interest and stipulates that income must be derived as return from entrepreneurial investment. Since Islamic finance is predicated on asset backing and specific credit participation in identified business risk, structuring shariah-compliant securitization seems straightforward. This paper explains the fundamental legal principles of Islamic finance, which includes the presentation of a valuation model that helps distil the essential economic characteristics of shariah-compliant synthetication of conventional finance. In addition to a brief review of the current state of market development, the examination of pertinent legal and economic implications of shariah compliance on the configuration of securitization transactions informs a discussion of the most salient benefits and drawbacks of Islamic securitization.

Suggested Citation

  • Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 07/117, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/117

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    References listed on IDEAS

    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Choudhry, Nurun N. & Mirakhor, Abbas, 1997. "Indirect Instruments Of Monetary Control In An Islamic Financial System," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 4, pages 28-65.
    4. El-Hawary & Dahlia & Grais, Wafik & Iqbal, Zamir, 2004. "Regulating islamic financial institutions : The nature of the regulated," Policy Research Working Paper Series 3227, The World Bank.
    5. Mirakhor, Abbas & Zaidi, Iqbal, 1988. "Stabilization and Growth in an Open Islamic Economy," MPRA Paper 56003, University Library of Munich, Germany.
    6. Munawar Iqbal & David T. Llewellyn, 2002. "Introduction," Chapters,in: Islamic Banking and Finance, chapter 1 Edward Elgar Publishing.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Luca Errico & Mitra Farahbaksh, 1998. "Islamic Banking; Issues in Prudential Regulations and Supervision," IMF Working Papers 98/30, International Monetary Fund.
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    Cited by:

    1. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    2. Kablan, S & Yousfi, O, 2011. "Efficiency of islamic and conventional banks in countries with islamic banking," MPRA Paper 32951, University Library of Munich, Germany.
    3. Abedifar, Pejman & Hasan, Iftekhar & Tarazi, Amine, 2016. "Finance-growth nexus and dual-banking systems: Relative importance of Islamic banks," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 198-215.
    4. Sandrine Kablan & Ouidad Yousfi, 2015. "Performance of Islamic Banks across the World: An Empirical Analysis over the Period 2001-2008," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(1), pages 27-46.
    5. Baele, L. & Farooq, M. & Ongena, S., 2012. "Of Religion and Redemption : Evidence from Default on Islamic Loans (Replaces CentER DP 2010-136)," Discussion Paper 2012-014, Tilburg University, Center for Economic Research.
    6. Mumtaz Hussain & Asghar Shahmoradi & Rima Turk, 2016. "An Overview of Islamic Finance," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-28, February.
    7. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2014. "Of religion and redemption: Evidence from default on Islamic loans," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 141-159.
    8. Juan Sole & Andreas Jobst, 2012. "Operative Principles of Islamic Derivatives; Towards a Coherent Theory," IMF Working Papers 12/63, International Monetary Fund.
    9. Giorgio Gomel & Angelo Cicogna & Domenico De Falco & Marco Valerio Della Penna & Lorenzo Di Bona De Sarzana & Angela Di Maria & Patrizia Di Natale & Alessandra Freni & Sergio Masciantonio & Giacomo Od, 2010. "Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity," Questioni di Economia e Finanza (Occasional Papers) 73, Bank of Italy, Economic Research and International Relations Area.
    10. Hussein, Kassim, 2010. "Bank level stability factors and consumer confidence – a comparative study of Islamic and conventional banks’ product mix," MPRA Paper 21800, University Library of Munich, Germany.
    11. repec:ipg:wpaper:2014-093 is not listed on IDEAS
    12. repec:ipg:wpaper:2014-448 is not listed on IDEAS
    13. Omar Masood & Ghulam Shabbir Khan Niazi & Noryati Ahmad, 2011. "An analysis of the growth and rise of smaller Islamic banks in last decade," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 3(2), pages 105-116, June.
    14. Andreas A. Jobst, 2014. "The Islamic debate on derivatives," Chapters,in: Handbook on Islam and Economic Life, chapter 16, pages iii-iii Edward Elgar Publishing.
    15. repec:ipg:wpaper:2014-505 is not listed on IDEAS
    16. Godlewski, Christophe J. & Turk-Ariss, Rima & Weill, Laurent, 2013. "Sukuk vs. conventional bonds: A stock market perspective," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 745-761.
    17. Abdelbari El Khamlichi & Kabir Sarkar Humayun & Mohamed Arouri & Frédéric Teulon, 2014. "Are Islamic equity indices more efficient than their conventional counterparts ? Evidence from major global index families," Working Papers 2014-91, Department of Research, Ipag Business School.
    18. repec:ipg:wpaper:2014-091 is not listed on IDEAS
    19. Jean Yves MOISSERON & Bruno Laurent MOSCHETTO & Frédéric TEULON, 2014. "Islamic finance: a review of the literature," Working Papers 2014-93, Department of Research, Ipag Business School.
    20. Karmila Hanim Kamil & Marliana Abdullah & Shahida Shahimi & Abdul Ghafar Ismail, 2010. "The subprime mortgages crisis and Islamic securitization," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 3(4), pages 386-401, November.


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