Participation in risk and reward, as an alternate to conventional risk-transfer finance, is important for achieving the higher ethical objectives of Islamic finance, called maqasid al shariah, and responsible finance in general. That is why participatory finance is advocated as the ideal form of financing and the essence of Islamic banking and finance. The Participatory Islamic Finance: The Ideals, Contemporary Practices, and Innovations presents a holistic view of both theory and practice of participatory models, constraints to its applications, success case studies of the participatory finance from multiple countries, and more importantly the recent innovations in participatory finance products. These new insights makes, the Participatory Islamic Finance: The Ideals, Contemporary Practices, and Innovations is an essential read and guide, for both Islamic finance academics and practitioners.
Author(s): Muhammad Nouman, Karim Ullah
Publisher: Palgrave Macmillan
Year: 2023
Language: English
Pages: 258
City: Singapore
Preface
A Note on Research Methodology
Contents
About the Authors
List of Figures
List of Tables
Part I The Ideals of Participatory Finance
1 Introduction to Participatory Finance
1.1 Islamic Banking and Finance
1.2 Participatory vs. Non-Participatory Modes of Islamic Finance
1.3 Definition and Forms of Participation in Islam
Shirkat-Ul-Milk (Participation in Ownership)
Shirkat-Ul-'Aqd (Participation by Contract)
1.4 Legality and Origin of Participation
1.5 Musharakah and Its Terms and Conditions
Conditions with Respect to Partners
Conditions with Respect to Capital Contribution
Conditions with Respect to Management
Conditions with Respect to Profit and Loss Sharing
Conditions with Respect to Maturity or Termination of Musharakah
1.6 Mudarabah and Its Terms and Conditions
Capital of Mudarabah
Mixing of Capital
Management of the Business Affairs
Distribution of Profit and Losses
Termination/Maturity of Mudarabah
1.7 Chapter Summary
References
2 Maqasid Al Shari’ah and Financial Concern of Human Life
2.1 Shari’ah and Its Higher Ethical Objectives (Maqasid al Shari’ah)
The Integrated Framework of Maqasid Al Shariah (Higher Ethical Objectives)
Maqasid Al Shari’ah and the Economic-Financial Concerns of Human Life
2.2 Conclusion
References
3 Linkage Between Maqasid Al Shari’ah and Participatory Finance
3.1 Aspiration-Oriented Vs Reality-Oriented Schools of Thoughts and the Social Welfare Role of Participatory Finance
3.2 The Philosophical Underpinning of Participatory Finance in the Light of the Axioms of Islamic Finance
3.3 The Nexus Between Maqasid Al Shari’ah and Participatory Finance
3.4 Conclusion and Implications
3.5 Chapter Summary
References
4 The Paradox of Idealization in Theory and Marginalization in the Practice
4.1 Idealization of Participatory Finance in the Islamic Baking Literature
4.2 Role of Participatory Financing in the Development of Islamic Banking System
4.3 The Inherent Benefits of Participatory Modes of Finance
Reduced Constraints to SMEs Financing
Promoting Stability of the Financial Sector
Improved Allocative Efficiency
Promotes Innovation
Stability of the Banking System
Effective Distribution of Risks
Closer Coordination Between the Real and Financial Sectors of Economy
Higher Return on Investment
Establishing Long-Term Relationships
4.4 The Marginalization of Participatory Finance in the Practice of Islamic Financial Institutions
4.5 Chapter Summary
References
Part II The Contemporary Practices of Participatory Finance
5 Constraints to Participatory Finance
5.1 Overview of the Extant Literature
5.2 The Coherent Constraints Framework
Uncertainty
Lower Demand
Regulatory Constraints
5.3 Implications of the Constraints Framework
5.4 Chapter Summary
References
6 The Applications of Participatory Finance
6.1 Variants of Participatory Financing in the Major Islamic Banking Industries
Diminishing Musharakah
Running Musharakah
6.2 Domains of Participatory Finance
Working Capital Financing
Consumer Financing
Commodity Operations Financing
Domestic Trade Financing
Import Financing
Mudarabah Based Financing
6.3 Chapter Summary
References
7 Assessment and Mitigation of Risks in the Participatory Financing Arrangements
7.1 Procedures for Assessment and Mitigation of Risks in Running Musharakah
Mechanism for the Assessment and Selection of Applicants
Strategies for Risk Mitigation in Running Musharakah
7.2 Procedures for Assessment and Mitigation of Risks in Diminishing Musharakah
Procedures for Assessment of Risks in Diminishing Musharakah
Strategies for Mitigation of Risks in Diminishing Musharakah
7.3 Chapter Summary
References
Part III The Adaptations and Innovations in Participatory Finance
8 Experiments with Participatory Financing
8.1 Iranian Experiments with Participatory Finance
8.2 Sudanese Experiments with Participatory Financing
8.3 Pakistani Experiments with Participatory Financing
8.4 Malaysian Experiments with Participatory Financing
8.5 Turkiye’s Experiments with Participatory Financing
8.6 Chapter Summary
References
9 Adaptation in Participatory Islamic Finance to Constraints and Its Outcomes
9.1 The Curious Case of Musharakah Spur in Pakistan
9.2 Detour: Adaptability of the Islamic Banking in Pakistan
9.3 Constraints, Adaptation, and Outcomes (CAO) Framework of Participatory Islamic Finance
Constraints to Musharakah Financing
Adaptation in Musharakah
Outcomes of Adaptation
9.4 Chapter Summary
References
Annexures
Annexure A: Details of the Systematic Literature Review Approach
Sample Selection
Analysis of the Literature
Annexure B: Tentative Payment Schedule with Unequal Monthly Payments
Annexure C: Tentative Payment Schedule with Step-Up Monthly Payments
Index
