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

Hasan, Zubair (2014): Risk-sharing versus risk-transfer in Islamic finance: An evaluation.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Key words: Financial crisis; Risk-Sharing; Risk-Transfer; Islamic system; KL Declaration
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents

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