Shaikh, Salman Ahmed (2011): A critical analysis of Mudarabah & a new approach to equity financing in Islamic finance. Published in: Journal of Islamic Banking & Finance , Vol. 28, No. 3 (1. July 2011)
Download (217kB) | Preview
Financial intermediation serves a valuable purpose, but it can also be structured using equity modes of financing. This can relieve the financee and increase diversity of entrepreneurial undertakings as in debt based commercial financing, there is little room for diversity with obligatory and stipulated servicing of debt. Using Islamic equity modes of financing poses the challenge of the agency problem and moral hazard. The extent of this agency problem in Mudarabah and its impact on economic payoffs between counterparties is analyzed in this study with a simulation model. Based on review of alternate solutions proposed, the author presents two possible covenants which could make Mudarabah mode of financing more acceptable and widely usable in financial intermediation. This would also further the egalitarian objectives of an Islamic economic order.
|Item Type:||MPRA Paper|
|Original Title:||A critical analysis of Mudarabah & a new approach to equity financing in Islamic finance|
|Keywords:||Interest free economy, Islamic Economic System, Mudarabah, Agency Problem, Moral Hazard, Adverse Selection|
|Subjects:||L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L38 - Public Policy
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I31 - General Welfare
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General
|Depositing User:||Salman Shaikh|
|Date Deposited:||19. Sep 2011 12:50|
|Last Modified:||12. Feb 2013 04:37|
Al-Tegani, Abdulgader A., (1423H/2003), Guaranteeing of Investment Deposits in Islamic Banks (Arabic), Journal of King Abdulaziz University: Islamic Economic, (This issue), Vol. 16, pp. 61-71.
Adnan, Akhyar & Muhammad (2008) Agency Problems in Mudarabah Financing: The Case of Shariah Rural Banks, Indonesia, In Obaidullah (2008). “Islamic Finance for Micro And Medium Enterprises.” IRTI.
Bank Negara Malaysia [n.d]. Draft of Shariah Parameter Reference 3: Mudarabah Contract
Bacha, I. Obiyatullah (1997). Adopting Mudarabah Financing to Contemporary Realities: A Proposed Financing Structure. The Journal Of Accounting, Commerce & Finance; Islamic Perspective. Vol 1, No.1, June 1997, pp.26-54.
Dar, H. A. and J. R. Presley (2000), "Lack of Profit Loss Sharing in Islamic Banking: Management and Control Imbalances", International Journal of Islamic Financial Services, Vol. 2(2) 1-9.
El-Gamal, Mahmoud A. Islamic Finance: Law, Economics & Practice. Cambridge: United Kingdom.
Ibn Taymiyyah: Majmu’ Fatawa Shaikh al-lslam ibn Taymiyyah, Riyadh. 1399 H.
Karim, Adiwarman A. (2000), “Incentive Compatible Constrains for Islamic: Banking Some Lessons From Bank Muamalat”, Conference Papers, Fourth International Conference on Islamic Economics and Banking Loughborough University, UK: August 13-15, 2000, 579-598.
Khalil, A. Fattah, Rickwood, Collin, and Murinde, Victor (2002). Evidence on Agency Contractual Problems in Mudarabah Financing Operations by Islamic Banks. Published in Iqbal and Llewellyn, pp: 57- 94
Khan, M. Fahim (2003). Guaranteeing Investment Deposits in Islamic banking System. J.KAU: Islamic Econ., Vol. 16, No.1, pp. 45-52
Khan, Mohsin S. and Mirakhor, Abbas (1987): Theoretical Studies in Islamic banking and Finance, Houston. Texas, The Institute for Research and Islamic Studies, 1987.
Masri, Rafic Younus (2002). The Binding Unilateral Promise (wa’d) in Islamic Banking Operations: Is it Permissible for a Unilateral Promise (wa’d) to be Binding as an Alternative to a Proscribed Contract? J.KAU: Islamic Econ., Vol. 15, pp. 29-33
Osservatore. Vatican. (March 04, 2009). “Islamic Banking May Help Overcome Crisis”. Press Release.
Rosly & Zaini (2008). Risk-return analysis of Islamic banks' investment deposits and shareholders' fund. Managerial Finance, Vol 34, Issue: 10.
Sarker, Muhammad Abdul (n.d). Islamic Business Contracts, Agency Problem & the Theory of the Islamic Firm. International Journal of Islamic Financial Services Vol. 1 No.2
Shaikh, Salman (2010). “Proposal for a New Economic Framework Based on Islamic Principles”. Karachi: Islamic Economics Project.
State Bank of Pakistan . Annual Report 2010, Karachi.
State Bank of Pakistan . Financial Stability Review 2007 – 08, Karachi.
Usmani, Muhammad Taqi (2004). “An Introduction to Islamic Finance.” Karachi: Maktaba ma’ariful Quran.
Usmani, Muhammad Taqi. (2007). “Ghair Soodi Bainkari” [Interest Free Banking]. Karachi: Maktaba Ma’ariful Quran.
Usmani, Muhammad Taqi (2003). “Islam Aur Jadid Maeeshat-o-Tijaraht” [Islam and Contemporary Economy and Trade]. Karachi: Maktaba ma’ariful Quran.
Warde, Ibrahim (1999), Islamic Finance in Global Economy, Edinburgh: Edinburgh University Press.