Can Islamic banking ever become Islamic?

Saad Azmat, Michael Skully and Kym Brown

Pacific-Basin Finance Journal, 2015, vol. 34, issue C, 253-272

Abstract: This paper attempts to explain the dominance of asset side debt contracts in Islamic banks, even though many consider alternative Islamic joint venture (IJV) contracts to be the ideal Islamic financing mode. Theoretical models based on asymmetric information are used to argue that adverse selection and moral hazard alone cannot explain this phenomenon. The model is augmented with risk averse depositors to show that the emergence of asset side IJV could be deterred by Islamic banks' liability side. This paper suggests that for IJV, affiliated venture capital and private equity might prove more successful institutions than banking.

Keywords: Islamic banks; Moral hazard; Islamic joint venture finance (search for similar items in EconPapers)
JEL-codes: G21 G24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:34:y:2015:i:c:p:253-272

DOI: 10.1016/j.pacfin.2015.03.001

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