Making Mudarabah workable: altering risk-return profiles through equity Kickers

Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mud...

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Main Authors:	Mustaffa Kamil, Nazrol Kamil, Bacha, Obiyathulla Ismath
Format:	Conference or Workshop Item
Language:	English
Published:	2011
Subjects:	HG3368 Islamic Banking and Finance
Online Access:	http://irep.iium.edu.my/67446/ http://irep.iium.edu.my/67446/ http://irep.iium.edu.my/67446/1/67446_Making%20Mudarabah%20Workable.pdf

id	iium-67446
recordtype	eprints
spelling	iium-674462019-04-23T07:03:35Z http://irep.iium.edu.my/67446/ Making Mudarabah workable: altering risk-return profiles through equity Kickers Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath HG3368 Islamic Banking and Finance Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mudarabah financing presents an uninviting commercial proposition to financiers. The use of equity kickers effectively shifts the risk/return balance in favour of the rabbal mal and thereby possibly rekindling interest in mudarabah on the part of financiers. This paper explores the dynamics of such an employment of equity kickers. Our analysis shows that equity kickers are particularly expedient, from the financier’s perspective, when project durations are short, expected profitability is less assuring and when mudarib’s equity stake is high. In addition, it is demonstrated that the profit sharing ratio can be used as a balancing mechanism to achieve equitability between the interests of the rabbal mal and mudarib. 2011 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/67446/1/67446_Making%20Mudarabah%20Workable.pdf Mustaffa Kamil, Nazrol Kamil and Bacha, Obiyathulla Ismath (2011) Making Mudarabah workable: altering risk-return profiles through equity Kickers. In: The Malaysian Finance Association 13th Annual Conference 2011, 10th-12th June 2011, Langkawi. (Unpublished) https://www.mfa.com.my/conference/previous-conference/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG3368 Islamic Banking and Finance
spellingShingle	HG3368 Islamic Banking and Finance Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Making Mudarabah workable: altering risk-return profiles through equity Kickers
description	Critics of contemporary Islamic finance often highlight the absence of meaningful presence of equity-based financing instruments such as mudarabah. It has been argued that this is attributable to inter alia, the agency problems inherent in mudarabah financing. Within a risk and return framework, mudarabah financing presents an uninviting commercial proposition to financiers. The use of equity kickers effectively shifts the risk/return balance in favour of the rabbal mal and thereby possibly rekindling interest in mudarabah on the part of financiers. This paper explores the dynamics of such an employment of equity kickers. Our analysis shows that equity kickers are particularly expedient, from the financier’s perspective, when project durations are short, expected profitability is less assuring and when mudarib’s equity stake is high. In addition, it is demonstrated that the profit sharing ratio can be used as a balancing mechanism to achieve equitability between the interests of the rabbal mal and mudarib.
format	Conference or Workshop Item
author	Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath
author_facet	Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath
author_sort	Mustaffa Kamil, Nazrol Kamil
title	Making Mudarabah workable: altering risk-return profiles through equity Kickers
title_short	Making Mudarabah workable: altering risk-return profiles through equity Kickers
title_full	Making Mudarabah workable: altering risk-return profiles through equity Kickers
title_fullStr	Making Mudarabah workable: altering risk-return profiles through equity Kickers
title_full_unstemmed	Making Mudarabah workable: altering risk-return profiles through equity Kickers
title_sort	making mudarabah workable: altering risk-return profiles through equity kickers
publishDate	2011
url	http://irep.iium.edu.my/67446/ http://irep.iium.edu.my/67446/ http://irep.iium.edu.my/67446/1/67446_Making%20Mudarabah%20Workable.pdf
first_indexed	2023-09-18T21:35:45Z
last_indexed	2023-09-18T21:35:45Z
_version_	1777412808521023488

Making Mudarabah workable: altering risk-return profiles through equity Kickers

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