Making Mudarabah workable: altering risk-return profiles through equity Kickers

Mustaffa Kamil, Nazrol Kamil and Bacha, Obiyathulla Ismath (2011) Making Mudarabah workable: altering risk-return profiles through equity Kickers. In: The Malaysian Finance Association 13th Annual Conference 2011, 10th-12th June 2011, Langkawi. (Unpublished)

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Abstract

Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mudarabah financing presents an uninviting commercial proposition to financiers. The use of equity kickers effectively shifts the risk/return balance in favour of the rabbal mal and thereby possibly rekindling interest in mudarabah on the part of financiers. This paper explores the dynamics of such an employment of equity kickers. Our analysis shows that equity kickers are particularly expedient, from the financier’s perspective, when project durations are short, expected profitability is less assuring and when mudarib’s equity stake is high. In addition, it is demonstrated that the profit sharing ratio can be used as a balancing mechanism to achieve equitability between the interests of the rabbal mal and mudarib.

Item Type:	Conference or Workshop Item (Plenary Papers)
Additional Information:	4979/67446
Uncontrolled Keywords:	Mudarabah workable, risk-return profiles, equity Kickers
Subjects:	H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance Kulliyyah of Economics and Management Sciences
Depositing User:	Dr. Nazrol Kamil Mustaffa Kamil
Date Deposited:	23 Apr 2019 15:03
Last Modified:	23 Apr 2019 15:03
URI:	http://irep.iium.edu.my/id/eprint/67446

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