Portfolio Determination of A Zero-Interest Financial System Entity

Shafi A. Khaled () and A. Wahhab Khandker ()
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Shafi A. Khaled: Metropolitan State University, Postal: 300 St. John’s Hall, 700 East 7th Street
A. Wahhab Khandker: University of Wisconsin - La Crosse,, Postal: La Crosse, WI 54601

Islamic Economic Studies, 2014, vol. 22-1, 217-232

Abstract: Beginning in the 1930s and increasing significantly post-colonialism, some Muslims scholars have wondered about the divine edict of interest-free nominal sector and how to realize it in the context of modern mass deposit institution and wide, concentrated financing demand for trade, entrepreneurship and consumption ends. This undertaking has faced challenges posed by the interest-based nominal sector. Evidence has mounted about the limitations of interest-free banks in the way they are organized and, of late, the largely a theoretical way they do business and their business and political operative environment. For explaining the phenomenon and predicting events, a risk-discounted, expected profit objective function produces rules for inter and intra-sectoral allocation of funds. The nonhomogeneity of mark-up and profit-loss-sharing products leads to adopting the average sizes of outlays in the two sectors as the choice variables. Identifying allocation rules for resources will benefit empirical analysis, banking policy and the central bank’s monitoring effor.

Keywords: Islamic Finance; Interest; Ribā; Diversification; Portfolio; Risk Return; Mushārakah; Muḍārabah; Murābaḥah; Mark-up; PLS. (search for similar items in EconPapers)
Date: 2014
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