Munich Personal RePEc Archive

Whither Islamic Finance? Risk Sharing in An Age of Crises

Mirakhor, Abbas (2010): Whither Islamic Finance? Risk Sharing in An Age of Crises.

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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.

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