Islamic Banks and Investment Financing

Aggarwal, Rajesh; Yousef, Tarik

doi:10.2307/2601094

Cited by 338 publications

(268 citation statements)

References 10 publications

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“…Mudharabah and musharakah can be considered as equity-based financing instruments, where both are based on a profit and loss sharing concept and are structured as a residual claim (Aggarwal and Yousef, 2000;Finnerty , 2013). Murabahah, ijarah and istisna are Islamic debt-based financing instruments commonly used for working capital financing with short term commitment of financing (Alexander, 2011;Ismal, 2014).…”

Section: Shariah Compliant Financingmentioning

confidence: 99%

“…The margin price is determined and agreed by both parties upon the contract, and payment is made in the future, usually in instalments (Aggarwal & Yousef, 2000). The contract in murabahah occurs multiple times.…”

Section: Debt-based Financing Instruments (Murabahah Istisna and Ijmentioning

confidence: 99%

“…It is an agreement between a financer (rabb al-mal) to provide all of the capital, and the other party (mudarib) managing the project, and the profits from the investment are distributed according to a fixed, predetermined ratio (Hassan & Lewis, 2007). In the case of loss in mudharabah financing, the party managing the project receives no compensation for their effort and the financer endures the losses unless they are the result of misconduct or negligence of the managing party (Aggarwal & Yousef, 2000;Beck, et al, 2013;Biancone & Shakhatreh, 2015). Unlike musharakah agreement, where all partners have the options to decide whose responsibilities they are for managing and/or delivery of the project, in mudharabah agreement the financer has no right to participate in the management (Usmani, 2002).…”

Section: Equity-based Financing Instruments (Musharakah and Mudharabah)mentioning

confidence: 99%

“…Prior studies have noted that murabahah is the most used instrument in Islamic banks for short term financing (Aggarwal & Yousef, 2000;Ariss, 2010). In Indonesia,…”

Section: Shariah Compliant Debt-based Over Equity-based Financing Insmentioning

confidence: 99%

“…Islamic banks' preference to provide short-term loans using debt-based instruments such as murabahah rather than long-term financing with equity-based instruments (Aggarwal & Yousef, 2000;Ariss, 2010;Huda, 2012) The dominant form of using murabahah, which is convenient for short-term finance, in Islamic banks, is very likely due to their limited funding sources from the client short maturity deposits. Participants from Islamic banks agreed that using short-term funds to finance projects with long-term commitment have consequences, such as exposure to asset-liability mismatch, creating the potential for liquidity shock and financial instability (Hassan & Kayed, 2009;Wahyudi, et al, 2015).…”

Section: Shariah Compliant Debt-based Over Equity-based Financing Insmentioning

confidence: 99%

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Identifying risk in shariah compliant financing for transport infrastructure projects in Indonesia

Rianto¹

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The Government of Indonesia is seeking an alternative mode of finance to develop its transport infrastructure. Taking into account the large Muslim population in Indonesia, the strong domestic demand for Islamic finance products, and the growing potential of Islamic banking operations, the government has been promoting the use of shariah compliant financing. Shariah compliant financing is in its infant stages, with a variety of financing instruments from debt-based financing (murabahah, istisna, and ijarah), equity-based financing (musharakah and mudharabah), and service-based financing. Financing can also be obtained from issuing and selling sukuk, certificates that represents ownership of a tangible asset or its usufruct, to investors. Shariah compliant financing and conventional financing are distinguished on the principle of financing, asset ownership, and the involvement of shariah board as a technical and administrative body supervising relevant activities comply with shariah.The literature to date has predominantly focused on risks in the Islamic banking industry and its operation. This research aims to identify the sources and types of risk exposure in shariah compliant financing for transport infrastructure projects in Indonesia. This research conducted thirteen semi-structured interviews with key transport stakeholders from the government, Islamic bank, academic, and consultant sectors. The research reveals that in Indonesia, debt-based shariah compliant financing instruments are the most utilised to finance transport infrastructure projects. The research identified that railways, roads, bridges, and seaports are the type of transport infrastructure facilities that are financed using shariah compliant financing instruments. The risks in shariah compliant financing are generally similar to the risks found in conventional projects with the addition of shariah compliance risk. These risks are identified into four categories: market, institutional and regulatory environment, shariah compliance, and project and structuring.The government is recommended to provide higher return of investment and shorter maturity terms in sukuk to attract more investors and stimulate the secondary market to reduce liquidity risk for the investors. This research also proposes that the National Shariah Board should be involved not only in the structuring stage but also in the entire lifespan of financing to ensure the transaction complies with shariah and reduce the exposure to shariah compliance risk.

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Section: Shariah Compliant Financingmentioning

confidence: 99%

Section: Debt-based Financing Instruments (Murabahah Istisna and Ijmentioning

confidence: 99%

Section: Equity-based Financing Instruments (Musharakah and Mudharabah)mentioning

confidence: 99%

“…Prior studies have noted that murabahah is the most used instrument in Islamic banks for short term financing (Aggarwal & Yousef, 2000;Ariss, 2010). In Indonesia,…”

Section: Shariah Compliant Debt-based Over Equity-based Financing Insmentioning

confidence: 99%

Section: Shariah Compliant Debt-based Over Equity-based Financing Insmentioning

confidence: 99%

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Identifying risk in shariah compliant financing for transport infrastructure projects in Indonesia

Rianto¹

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Bibliography

2011

The Islamic Banking and Finance Workbook

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Islamic Banks and Investment Financing

Cited by 338 publications

References 10 publications

Identifying risk in shariah compliant financing for transport infrastructure projects in Indonesia

Identifying risk in shariah compliant financing for transport infrastructure projects in Indonesia

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