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Risk-sharing versus risk-transfer in Islamic finance: An evaluation

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  • Hasan, Zubair

Abstract

Some recent writings on Islamic finance have resuscitated the old‘no risk, no gain’ precept from the earlier literature in the wake of current financial crisis. They argue that the basic reason for the recurrence of such crisesis the conventional interest-based financial system that rests purelyon transfer of risks. In contrast, Islam shuns interest and promotes sharing of risks, not their transfer.The distinction is used to make a case for replacing the conventional system with the Islamic; for that alone is thought as the way to ensuring the establishment of a just and stable crisis freeeconomic system. Islamic banks have faced the current crisis better than the conventional is cited as evidence. This paper is a critique of this line of argument and concludes that the case is for reform not for replacement of the current system marked with increasing duality.

Suggested Citation

  • Hasan, Zubair, 2014. "Risk-sharing versus risk-transfer in Islamic finance: An evaluation," MPRA Paper 58059, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58059
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    References listed on IDEAS

    as
    1. Hasan, Zubair, 2005. "Islamic banking at the crossroads: theory versus practice," MPRA Paper 2821, University Library of Munich, Germany.
    2. Hasan, Zubair, 2014. "Islamic Banking and Finance: An Integrative Approach," OUP Catalogue, Oxford University Press, number 9789834710453.
    3. Mohammad Umer Chapra, 2009. "The Global Financial Crisis: Can Islamic Finance Help? الأزمة المالية العالمية: هل يساعد التمويل الإسلامي؟," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Issues in the International Financial Crisis from an Islamic Perspective-05 قضايا في الأزمة المالية العالمية من منظور إسلامي, edition 1, chapter 2, pages 11-18, King Abdulaziz University, Islamic Economics Institute..
    4. Muhammad Umer Chapra, 2014. "Morality and Justice in Islamic Economics and Finance," Books, Edward Elgar Publishing, number 15817.
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    Cited by:

    1. Zubair Hasan, 2016. "PLS Finance and Monetary Policy: A New Measure Mooted," Journal of Reviews on Global Economics, Lifescience Global, vol. 5, pages 288-297.
    2. Hasan, Zubair, 2016. "PLS finance and monetary policy: a new measure mooted," MPRA Paper 72898, University Library of Munich, Germany, revised Jul 2016.
    3. Zubair Hasan, 2021. "Islamic Economics: Morality, Rationality, and Research الاقتصاد الإسلامي: الأخلاق والعقلانية والبحث," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 34(2), pages 111-120, July.
    4. Hasan, Zubair, 2016. "Credit control instruments in a dual banking system: leverage control rate (LCR) – a proposal," MPRA Paper 65027, University Library of Munich, Germany, revised 18 Feb 2016.

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    More about this item

    Keywords

    Key words: Financial crisis; Risk-Sharing; Risk-Transfer; Islamic system; KL Declaration;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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