Regime Uncertainty : Interest Rate Based Debt Financing System

Shaukat, Mughees; Mirakhor, Abbas

doi:10.12816/0004979

JIBM

2012

DOI: 10.12816/0004979

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Regime Uncertainty : Interest Rate Based Debt Financing System

Mughees Shaukat¹,

Abbas Mirakhor²

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2014

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“…Shaukat et al, 2013; See alsoEpstein (2002),Askari et al, (2011Askari et al, ( , 2012,Hasan (2008Hasan ( , 2010aHasan ( , b, 2011a andMirakhor (2010Mirakhor ( , 2011a.…”

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confidence: 99%

Financing Economic Growth with Stability from Islāmic Perspective

Shaukat¹,

Ḥasan²,

Alhabshi³

2014

JIBM

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Evidence has been mounting that the interest-based debt financing regime is under increasing distress. Evidence also suggests that the financial crises, whatever title they carried -exchange rate crisis or banking crisishave been debt related crises in essence. At present, data suggest that the debt-to-GDP ratio of the richest members of the G-20 is expected to reach 120% mark by 2014. There is also evidence that out of securities worth US$ 200 trillion in the global economy, no less than three-fourth represent interest-based debt. It is difficult to see how this massive debt volume can be validated by the underlying productive capacity of the global economy. This picture becomes more alarming considering the anemic state of global economic growth. There is great uncertainty with regard to interest rates. Although policy-driven interest rates are at near-zero level, there is no assurance that they will not rise as the risk and inflation premia become significant. Hence, a more serious financial crisis may be in the offing and a general collapse of asset prices may occur. This paper argues that the survival of the interest-based debt regime is becoming less tenable, as is the process of financialization that has accompanied the growth of global finance over the last four decades. The above has resulted in an unprecedented increase in economic risks; generating (adverse) nonlinearities in system's behavior. Such a behavior is nothing but a demonstration of the verse, "Allah obliterates ribā …." of the Qur'ān. As a result, the search is on for a paradigm shift towards a less volatile and more resilient financing regime. The paper proposes risk sharing based Islāmic financing as suitable alternative and also demonstrates empirically

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“…Shaukat et al, 2013; See alsoEpstein (2002),Askari et al, (2011Askari et al, ( , 2012,Hasan (2008Hasan ( , 2010aHasan ( , b, 2011a andMirakhor (2010Mirakhor ( , 2011a.…”

mentioning

confidence: 99%

Financing Economic Growth with Stability from Islāmic Perspective

Shaukat¹,

Ḥasan²,

Alhabshi³

2014

JIBM

Self Cite

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Regime Uncertainty : Interest Rate Based Debt Financing System

Cited by 1 publication

References 0 publications

Financing Economic Growth with Stability from Islāmic Perspective

Financing Economic Growth with Stability from Islāmic Perspective

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