ISLAMIC QUASI EQUITY (DEBT) INSTRUMENTS AND THE CHALLENGES OF BALANCE SHEET HEDGING: AN EXPLORATORY ANALYSIS

Tariqullah Khan ()
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Tariqullah Khan: Islamic Research & Training Institute, Postal: IDB, Jeddah, Saudia Arabia

Islamic Economic Studies, 2000, vol. 07-1, 1-31

Abstract: Debt creation by deferred trading is a predominant form of Islamic financing, but sale of debts through conventional procedures is prohibited in Islamic finance. Therefore, due to the existence of the markup price risk, Islamic financial institutions are not able to provide funds for longer-term periods. This paper explores Islamic quasi equity (debt) instruments and argues that such instruments can empower the Islamic financial system to manage important risks and enhance the provision of long-term funds. The premises discussed are based on the sale of debts against real assets, which facilitates embedded options and convertible Islamic financial instruments. It is expected that the premises discussed could be useful in the development of a fully-fledged Islamic financial market.

Date: 2000
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