Islamic financial institutions and participatory finance constraints : the case of Pakistan

Joint Authors

Ali, Azzam
Kishwar, Tanveer
Zulkhibri, Muhammad

Publisher

Islamic Development Bank (IDB) Islamic Research and Training Institute (IRTI)

Publication Date

2018-05-08

Country of Publication

Saudi Arabia

No. of Pages

26

Main Subjects

Financial and Accounting Sciences
Islamic Studies

English Abstract

Islamic financial contracts are designed to facilitate financing according to Islamic norms.

Islamic financing in its first stages used only the partnership modes of Musharakah and Mudarabah.

Later it is realized that, to avoid moral hazards, yet compete successfully with conventional banks, it is necessary to use all permissible Islamic modes and consequently, trade and leasing techniques were developed.

This paper aims to identify the constraints faced by Islamic financial institutions in the adoption of participatory finance i.e., Musharakah and Mudarabah financing.

The two basic categories of financing are: 1) profit-and-loss-sharing (PLS), also called participatory finance, i.e.

Musharakah and Mudarabah and 2) purchase and hire of goods or assets and services on a fixed-return basis, i.e., Murabahah, Istisna', Salam and Ijarah also called non-participatory finance.

This paper suggests that innovation and creativity is necessitated more than ever to promote participatory modes of financing and to make it the preferred choice for meeting the increasingly sophisticated and diversified financial needs.

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Language

English

Document Type

Book

Notes

Includes bibliographical references

Record ID

BIM-855244