Maqasid-al-Shari’ah and Debt Financing Contracts: Some Observations
April 1st, 2017
By Syed Munawar-Shah, Mariani Abdul-Majid, Zulkefly Abdul Karim, & AnowarZahid
According to advocates of Islamic banking, the Shari’ah compliant debt contracts are the right call in addressing both the issue of asymmetric information and ‘fairness and justice in contrast to the standard debt contract used in the conventional banking. In this paper, we discuss the Shari’ah principles that are used in the product management with respect to Shari’ah compliant and controversial contracts. In addition to it, we assess the debt financing contracts in terms of consequences, including financialization and risk-sharing. The controversial contracts are not good at resolving the issue of risk-sharing and may lead to adverse macroeconomic effects similar to the standard debt contract. The Shari’ah principles agreed by all schools of thoughts may be best in ensuring limitation on the financialization and as well as enhancing risk-sharing.