Islamic Financial Institutions and Participatory Finance Constraints: The Case of Pakistan

26 Pages Posted: 19 Dec 2018

See all articles by Azam Ali

Azam Ali

Islamic Development Bank - Islamic Research and Training Institute

Tanveer Kishwar

Islamic Development Bank - Islamic Research and Training Institute

Muhamed Zulkhibri

Islamic Research and Training Institute - Islamic Development Bank

Date Written: May 08, 2018

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.

Keywords: Participatory Finance; Impact Analysis; Islamic Banks; Pakistan

Suggested Citation

Ali, Azam and Kishwar, Tanveer and Zulkhibri, Muhamed, Islamic Financial Institutions and Participatory Finance Constraints: The Case of Pakistan (May 08, 2018). IRTI Policy Paper No. 2018-02, Available at SSRN: https://ssrn.com/abstract=3303704 or http://dx.doi.org/10.2139/ssrn.3303704

Azam Ali (Contact Author)

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Tanveer Kishwar

Islamic Development Bank - Islamic Research and Training Institute

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Muhamed Zulkhibri

Islamic Research and Training Institute - Islamic Development Bank ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
191
Abstract Views
1,119
Rank
251,976
PlumX Metrics