The Islamic Debt Market for Sukuk Securities

The Islamic Debt Market for Sukuk Securities

The Theory and Practice of Profit Sharing Investment

Foundations of Islamic Finance series

Edited by Mohamed Ariff, Munawar Iqbal and Shamsher Mohamad

The relatively new sukuk (or Islamic debt securities) markets have grown to more than US $800 billion over the past decade, and continue to grow at a rate of around 20-30 per cent per year. Arguably the first of its kind, this path-breaking book provides a highly unique reference tool relating to key issues surrounding sukuk markets, which are found in 12 major financial centres, including Kuala Lumpur, London and Zurich.

Chapter 5: History of Islamic Public Finance: Gharar and Risk Aversion

Murat Çizakça

Subjects: economics and finance, financial economics and regulation, islamic economics and finance, money and banking


Murat Çizakça 5.1 INTRODUCTION Gharar is usually examined in the literature from the perspective of modern Islamic private finance. In this article, I will focus on public finance and try to explain how this important concept found an application in history. It is a concept that has a long history, and was embedded in Islamic jurist work over centuries of comments and interpretations. To the West, this idea has come as a borrowed concept to mean risk as the word is roughly translated as uncertainty, which has come to modern economics and finance as a fundamental concept of relevance to associate risk with returns in contemporary finance literature. In this chapter, I will first make an attempt to define the concept as it is available in Islamic legal literature before tracing its applications. In section 5.2 the reader will find an attempt to lay the foundation principles of gharar meaning uncertainty including lack of symmetry in information provision. Section 5.3 describes how this concept was an underlying theme in the Turkish government’s effort to raise tax revenue. This is followed in section 5.4 by a description of the evolution of tax-farming, which led to the development of principles of the Islamic debt instrument. This chapter concludes in section 5.5. 5.2 THE MEANING OF GHARAR The word ‘gharar’ comes from the Arabic root verb ‘Gharara/gharra’ meaning to expose oneself and one’s property to destruction without being aware of it. Thus, it has been argued, the most important element of gharar...

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