Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Murabaha syndrome of Islamic banks: a paradox or product of the system?

Murabaha syndrome of Islamic banks: a paradox or product of the system? This paper aims to explain the “murabaha syndrome” of Islamic banks. It further attempts to offer alternatives for the expansion of profit and loss sharing (PLS)-based financing.Design/methodology/approachAudited financial statements of 18 Islamic banks in the GCC countries are analyzed to assess the financing structures of banks. Moreover, additional data about financing pattern of Islamic banks in other Muslim majority countries are collected from the Islamic finance literature. A comparative analysis is offered to examine the financing structures of Islamic banks.FindingsThe paper confirms murabaha (mark-up financing) concentration of Islamic banks. About 90 per cent of the total financing are concentrated on murabaha, which is the result of existing institutional underpinnings. Islamic banks would logically be involved with PLS-based financing only limitedly unless the current governing institutions are changed. Entrepreneurs’ financing needs based on PLS contracts should be catered by venture capital, whereas micro-finance enterprises can meet the demand for funds of marginal clients.Practical implicationsPLS investment in the portfolio of Islamic banks would result in higher risk and uncertainty. Ambiguity, or its equivalent uncertainty, is prohibited in Islam. This is a dilemma which the existing literature does not sufficiently explain.Originality/valueIdeally, Islamic banks should practice PLS-based financing; otherwise, their raison d’être would be difficult to justify. Islamic finance literature does not shed sufficient analytical lights in explaining Islamic banks’ preference of mark-up financing to PLS-based financing. Moreover, strategies to ameliorate this condition have largely remained unexplored. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Murabaha syndrome of Islamic banks: a paradox or product of the system?

Download PDF
16 pages

Loading next page...
 
/lp/emerald-publishing/murabaha-syndrome-of-islamic-banks-a-paradox-or-product-of-the-system-XQKIMEkg8w

References (31)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-05-2018-0067
Publisher site
See Article on Publisher Site

Abstract

This paper aims to explain the “murabaha syndrome” of Islamic banks. It further attempts to offer alternatives for the expansion of profit and loss sharing (PLS)-based financing.Design/methodology/approachAudited financial statements of 18 Islamic banks in the GCC countries are analyzed to assess the financing structures of banks. Moreover, additional data about financing pattern of Islamic banks in other Muslim majority countries are collected from the Islamic finance literature. A comparative analysis is offered to examine the financing structures of Islamic banks.FindingsThe paper confirms murabaha (mark-up financing) concentration of Islamic banks. About 90 per cent of the total financing are concentrated on murabaha, which is the result of existing institutional underpinnings. Islamic banks would logically be involved with PLS-based financing only limitedly unless the current governing institutions are changed. Entrepreneurs’ financing needs based on PLS contracts should be catered by venture capital, whereas micro-finance enterprises can meet the demand for funds of marginal clients.Practical implicationsPLS investment in the portfolio of Islamic banks would result in higher risk and uncertainty. Ambiguity, or its equivalent uncertainty, is prohibited in Islam. This is a dilemma which the existing literature does not sufficiently explain.Originality/valueIdeally, Islamic banks should practice PLS-based financing; otherwise, their raison d’être would be difficult to justify. Islamic finance literature does not shed sufficient analytical lights in explaining Islamic banks’ preference of mark-up financing to PLS-based financing. Moreover, strategies to ameliorate this condition have largely remained unexplored.

Journal

Journal of Islamic Accounting and Business Research – Emerald Publishing

Published: Jun 18, 2020

Keywords: Islamic finance; Islamic banks; Murabaha; Musharaka; Risk; Venture capital; Microfinance; G21; G28

There are no references for this article.