Persistence of Islamic banks in financing through creation of debt: causes and prospects

Sadique, Muhammad Abdurrahman (2024) Persistence of Islamic banks in financing through creation of debt: causes and prospects. International Journal of Advanced Research in Economics and Finance, 6 (3). pp. 237-245. E-ISSN 2682-812X

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Abstract

Although Islamic banks are allowed to invest in businesses directly based on equity participation in addition to financing third party enterprises, in actual fact, direct investment by Islamic banks is not seen to have flourished due to a variety of factors, not the least among them being the identity inherited from the conventional industry as mere financial intermediaries, and legal impediments resultant of this identity. Despite of certain advantages as could be perceived in the equity mode, the conventional system of banking and finance is seen to be founded on debt financing with the interest-based loan as its primary building block, equity financing usually being the last resort. The conventional system has refused to share in the risk of the ventures financed in any manner, sufficing with the risk-free gain through interest income. Adoption of equity financing modes by Islamic banks themselves is noted to be less common than the use of debt-financing modes. The latter usually involve various adaptations of mark-up schemes, and are employed for the most part in short-term financing. The current paper seeks to discuss the above issues also exploring root causes and possible solutions.

Item Type:	Article (Journal)
Uncontrolled Keywords:	debt, financing, Islamic, equity, banking
Subjects:	BPH Islamic Economics > BPH186.4 Bay' Al-Dayn - Debt Financing H Social Sciences > HB Economic Theory > HB126.4 Islamic Economics H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Ahmad Ibrahim Kulliyyah of Laws Ahmad Ibrahim Kulliyyah of Laws > Department of Islamic Law
Depositing User:	Dr Muhammad Abdurrahman Sadique
Date Deposited:	05 Nov 2024 09:31
Last Modified:	05 Nov 2024 09:31
URI:	http://irep.iium.edu.my/id/eprint/115545

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