Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad
Chapter 6: Foundations of risk-sharing finance: an Islamic view
Before the inception of the Islamic Finance Industry (IFI), there was what could be called a ‘market failure’ in the conventional system: significant unmet demand for Shari’ah-compliant financial products. IFI grew out of conventional finance to meet this demand. Muslim scholars writing since the 1970s emphasized that Islamic finance was about risk-sharing (or profit/loss-sharing) contracts (see Siddiqi, 1985). Practitioners grounded in conventional finance, however, were interested in developing ways and means of finance that, while Shari’ah-compliant, were familiar to and accepted by market players in conventional finance. Scholars emphasized risk-sharing while practitioners focused on traditional methods of conventional finance based on risk transfer and risk shifting. In doing so, financial instruments of conventional finance were replicated, reverse engineered or retrofitted for Shari’ah compatibility, a somewhat regrettable process.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.