Risk-sharing the sole basis of Islamic finance? time for a serious rethink

Zubair Hasan

MPRA Paper from University Library of Munich, Germany

Abstract: There has been a misleading revival of an old precept in Islamic finance - ‘no risk, no gain’- in the wake of the global financial crisis that started with the 2007 sub-prime debacle in the US. The recent proponents of the precept argue that the basic reason for the recurrence of such crises is the interest based conventional system of financing because it subsists solely on transference of risks to counter parties. In contrast, Islam shuns interest and promotes, they say, only the sharing of risks, not their transfer. The distinction is used to make a case for replacing the conventional system with the Islamic;for that alone is thought as the way to ensuring the establishment of a just and stable crisis free economic system. Empiric contending that Islamic banks have faced the current crisis better than the conventional are cited as the supporting evidence. The present paper refutes this line of argumentation and questions its basis and contentions.

Keywords: Financial crisis; Risk-sharing; Risk-transfer; Islamic banks; ‘No risk (search for similar items in EconPapers)
JEL-codes: G0 G01 G2 (search for similar items in EconPapers)
Date: 2016-02-10, Revised 2018-04-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Risk-sharing the sole basis of Islamic finance? time for a serious rethink 2.29(2016): pp. 23-35

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https://mpra.ub.uni-muenchen.de/72271/1/MPRA_paper_72252.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/72273/1/MPRA_paper_72252.pdf revised version (application/pdf)

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