Kym Brown, M. Kabir Hassan and Michael Skully
Ouidad Yousfi and M. Kabir Hassan
The chapter presents a discussion of the financial literature on Islamic private equity (PE) financing modes under moral hazard. We focus on Mudarabah and Musharakah financing methods based on a contractual approach and analyze how and when profit and loss sharing (PLS) financing methods can solve asymmetric information problems under moral hazard relying on agency models. The models show some interesting results. First, Mudarabah financing provides powerful incentive schemes to the entrepreneur. As the Islamic PE fund is not actively involved in the project and the project success depends on the entrepreneur’s effort, it leads to the first best solution. Second, Musharakah financing cannot solve the moral hazard problem. One explanation could be the fact that the project is jointly funded by the two parties and that both of them provide non-contractible efforts. Accordingly, they have to concede a share of their revenue to increase the effort incentive of the other party, which diminishes their own incentive to provide effort.
Edited by M. Kabir Hassan and Mervyn K. Lewis
The Handbook of Islamic Banking comprises 25 studies by leading international experts on Islamic banking and finance specially commissioned to analyse the various debates and the current state of play in the field. This comprehensive Handbook provides a succinct analysis of the workings of Islamic banking and finance, accessible to a wide range of readers. At the same time, it seeks to bring the current research agenda and the main issues on Islamic banking before a wider audience.
M. Kabir Hassan and Mervyn K. Lewis
Umar A. Oseni and M. Kabir Hassan
There is no doubt that the rate at which sukuk financing has been accepted in different jurisdictions outside the usual Muslim-majority countries is encouraging. This seemingly considerable feat comes with much responsibility and a proactive role for Shar_‘ah scholars and regulators. The chapter examines prevailing practices in the market and the need to enhance the Shar_‘ah compliance of the processes through proper regulation and follow-up supervision of sukuk transactions, particularly the underlying contracts. To this end, law and Shar_‘ah should complement each other with a view to ensuring compliance with the laid-down rules. A number of fundamental legal issues that are important in the ICM and consequently applicable to sukuk transactions have been raised. Some of these legal issues are either taken for granted during the drafting stage or assumed to be effective even though the philosophy underlying such issues differs from the original value proposition of Islamic economics. Therefore, it is incumbent on the stakeholders not only to promote a commercially viable industry but also to ensure that Shar_‘ah principles are observed at all stages of sukuk transactions. This is where regulation and supervision intercept in the general framework of Islamic finance.
Adewale Abideen Adeyemi and M. Kabir Hassan
The incidence of financial exclusion and the consequential persistent dimension that poverty is assuming, especially in most Muslim-dominated countries, are worrying. While impact studies on microfinance are inconclusive, convergence of some sort exists to suggest the importance of religious consideration as an important factor for voluntary exclusion from participating in conventional microfinance in these countries. The focus of this chapter is on the imperative of Islamic microfinance as an alternative panacea to alleviate poverty via enhanced financial inclusion. Thus it offers an exposition of the concern from which Islamic microfinance evolved, and its present outlook in terms of outreach, sustainability and impact in the Muslim world. Some examples of Islamic microfinance institutions around the world are offered, indicating their success stories as well as challenges. Without being prejudicial to the efficacy of conventional microfinancing, the chapter argues that what the poor need is Islamic microfinancing. This is so given its implicit blend of both the mechanics and the spirit of the socio-economic distributive justice that underlies the true philosophy of microfinancing. However, it seems that, in their present exemplifications, marked differences between Islamic and conventional microfinance may not be apparent beyond how interest (riba) is conceptualized and operationalized. Consequently, this chapter clamours for maqasid shariah-driven Islamic microfinancing, given that shariah as divine guidance for humankind in its entirety has as its prime objective the enhancement of the well-being of man in its entire ramifications. Importantly, maqasid shariah aims essentially at protecting the faith (deen), life (nafs), intellect (aql), posterity (nasl) and wealth (mal) of man, which are referred to as al-daruriyyat al-khamsah (the five fundamentals or necessities).
Edited by M. Kabir Hassan and Mervyn K. Lewis
Handbook on Islam and Economic Life is a unique study, one of the first of its kind to consider Islam within a broader economic sphere. Covering a wide breadth of topics and research, it explores how Islam impinges upon and seeks to shape major aspects of economic life including economic organisation, business and management, finance and investment, charity, mutuality and self-help, and government. It concludes by analysing the link between religion and development, the present economic situation in Arab countries and the causes of underdevelopment in Muslim countries.