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Whither Islamic Finance? Risk Sharing in An Age of Crises

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  • Mirakhor, Abbas

Abstract

The aim of this paper is to explore potential path of progress in developing full-spectrum Islamic finance. It will be argued that all Islamic transaction contracts (‘uqud) are risk sharing contracts. Next,the paper will explore ways and means of creating sufficiently strong impetus for widening and deepening the present menu of instruments toward longer time, higher risk-return, investment-oriented instruments. It will argue that governments can create the energy and the incentives within the private sector in this direction by first developing a vibrant and efficient equity market. Such a market will serve to stake out the higher end of the spectrum of Islamic finance instrument menu. Incentives will then allow the private sector to develop risk-sharing instrument in between the low and high end of time, risk-return profile of the menu. The paper will also address principles and methods underlying the legal, regulatory, supervisory infrastructure as well as economic policies needed to organize such an equity market.

Suggested Citation

  • Mirakhor, Abbas, 2010. "Whither Islamic Finance? Risk Sharing in An Age of Crises," MPRA Paper 56341, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56341
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    File URL: https://mpra.ub.uni-muenchen.de/56341/1/MPRA_paper_56341.pdf
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    References listed on IDEAS

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    Cited by:

    1. Imam, Patrick & Kpodar, Kangni, 2016. "Islamic banking: Good for growth?," Economic Modelling, Elsevier, vol. 59(C), pages 387-401.
    2. Lajis, Siti Muawanah, 2017. "Risk-Sharing Securities: Accelerating Finance for SMEs," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 25, pages 35-55.
    3. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.
    4. Šeho, Mirzet & Bacha, Obiyathulla Ismath & Smolo, Edib, 2020. "The effects of interest rate on Islamic bank financing instruments: Cross-country evidence from dual-banking systems," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    5. Swastika, Putri & Dewandaru, Ginanjar & Masih, Mansur, 2013. "Does Restricted Short Selling Bring Benefit to Stocks Listed in Islamic Capital Market? New Evidence from Malaysia based on Dynamic Panel Heterogeneous Techniques," MPRA Paper 58833, University Library of Munich, Germany.
    6. Seho, Mirzet & Alaaabed, Alaa & Masih, Mansur, 2016. "Risk-Sharing Financing of Islamic Banks: Better Shielded Against Interest Rate Risk?," MPRA Paper 82558, University Library of Munich, Germany.

    More about this item

    Keywords

    Islamic finance; uncertainty; risk; equity Markets;

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • P47 - Economic Systems - - Other Economic Systems - - - Performance and Prospects

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