Category: Articles on Islamic Finance

Articles on Islamic Finance

Realist and the Idealist Schools of Thought in Islamic Banking

Inclusivity, equitable distribution of resources and socio-economic mobility do not determine Shari’ah compliance or validity. However, these visionary goals are the aspirations of many people in academics and public at large. The realists contend that the visionary objectives of equitable distribution of income will be taken care of in the long run by Islamic social finance institutions, such as Zakat and Waqf. Islamic banks as one part of Islamic finance ecosystem will continue to serve the short term financing requirements of clients and for which debt based Islamic modes of financing are the suitable options.

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Islamic Banking and Conventional Banking During COVID-19 Crisis

If the virus had been growing at a linear rate, it would not have been that much dangerous. It is the exponential increase in the Corona Virus spread which makes it become uncontrollable and create havoc in the society. Compound interest in the financial system is such a Corona Virus. Interest accrued but unpaid increases interest in the future periods ahead at an exponential rate.

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Future Sukuk Growth Depends on Overcoming Challenges

Sukuk issuance needs to be used in providing finance for diverse needs. Corporate issuances follow the trends in business cycles. Sovereign Sukuk for development finance can provide impetus to the Sukuk issuance in cyclical downturns. In addition to that, it can also provide long-term macroeconomic support to the governments and enterprises by building the infrastructure for tomorrow.

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Potential of Islamic Finance to Lead New Financial Architecture

The two most important problems identified in a post-financial crisis look back are perverse incentives and de-linking of financial sector growth and activities with the real sector of the economy. Islamic finance principles by basing all financial products with real assets fill the gap and this feature alone is a very important risk management tool inbuilt into the system.

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Economic Merits of Islamic Modes of Financing

From the risk and profitability perspective, Islamic modes of financing keep the Islamic financial system liquid and less prone to risk due to asset backing. Often, the investors with bank (the deposit holders) are risk averse and want consistent returns. But, small savers do not have enough funds to finance big volume projects directly. But, using investors’ pool of funds to provide financing, the investors are able to share in benefit of such economic activities.

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