Munich Personal RePEc Archive

Islamic Finance: Debt versus equity An empirical Issue

Hasan, Zubair (2014): Islamic Finance: Debt versus equity An empirical Issue.

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Abstract

The current financial turmoil has led many writers in the area of Islamic finance to revive an old edict in Islamic finance – no risk, no gain. I have discussed this axiom in my earlier writings and have not come across anything in recent advocacy of its proponents that could make me change my position. Thus the object of this brief note is not to reopen that dialogue. In view of the theoretical heat that recent writings have generated, empiricists are prompted to test the hypothesis: Equity financing is better than reliance on debt for economic stability and growth, Muslim countries being the reference point. For this purpose, it is not difficult to select a sample and specify the relevant variables. But as growth in GDP is pivotal variable here the choice of production function for the work becomes important as there is a variety of frame works available. This note discusses the selection issue. More specifically, can we safely use a Model with technology remaining unchanged or it is imperative to have a dynamic framework?

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