Financial Guarantee as Innovation Tool in Islamic Project Finance

31 Pages Posted: 21 Mar 2006 Last revised: 15 May 2015

See all articles by Issouf Soumaré

Issouf Soumaré

Laval University

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: February 1, 2006

Abstract

This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as provider of loan guarantees. The entrepreneur (musharakah) initiates a project and raises funds by issuing Islamic profit sharing debt instruments (mudarabah). The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the debt capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for the government intervention in the arrangement of those projects.

Keywords: Islamic finance, Financial guarantee, Credit insurance

Suggested Citation

Soumaré, Issouf and Hassan, M. Kabir, Financial Guarantee as Innovation Tool in Islamic Project Finance (February 1, 2006). Journal of Business Ethics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=890673 or http://dx.doi.org/10.2139/ssrn.890673

Issouf Soumaré (Contact Author)

Laval University ( email )

Faculty of Business Administration
Department of Finance, Insurance and Real Estate
Quebec, Quebec G1V 0A6
Canada
1418 656 3423 (Phone)
1418 656 2624 (Fax)

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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