Risk, uncertainty and the market: a rethinking of Islamic and Western finance

2020 ◽  
pp. 1-14
Author(s):  
Daniele D'Alvia
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Islamic Law ◽  
Islamic Finance ◽  
Uncertainty Aversion ◽  
Risk And Uncertainty ◽  
Regulation Of Financial Markets ◽  
Money Creation ◽  
The Difference ◽  
Legal Frameworks

Abstract This paper aims at providing an account of the Islamic conception of Gharar in contrast to the current Western conceptualisation of risk, using the respective financial legal frameworks of both as the criterion. One of the more decisive stakes of the difference in approach between the Islamic and contemporary Western legal orders today concern the regulation of financial markets; specifically, the definitions of risk and uncertainty – crucial characteristics of modern economies – can be understood as preferentially related to specific features of Islamic law. In the end, according to Knight, money-creation processes are centred on uncertainty. Without uncertainty, there is no profit. This is why, although different at first sight, Islamic finance with its understanding of permissible Gharar and Western finance with its uncertainty-aversion trend have become more resilient, especially since the financial crisis (2007–2010).

Cryptoliquidity: the blockchain and monetary stability

2019 ◽  
Vol 9 (2) ◽  
pp. 227-252 ◽  
Author(s):  
James Lee Caton
Keyword(s):  
Financial Markets ◽  
Aggregate Demand ◽  
Macroeconomic Fluctuations ◽  
Demand For Money ◽  
Policy Regime ◽  
Content Type ◽  
Blockchain Technology ◽  
Regulation Of Financial Markets ◽  
Money Creation ◽  
Money Holding

Purpose The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that they are caused by fluctuations in the supply of or demand for money. Holding monetary policy as solution assumes that stability must arise from outside of the economic system. Under a policy regime that allows innovations in blockchain to develop, blockchain technology may promote a money supply that is responsive to changes in demand to hold money. The purpose of this paper is to suggest that cryptocurrencies present an opportunity to profitably implement rules that promote macroeconomic stability. In particular, cryptocurrency that is asset-backed may provide a means for cheaply attaining liquidity during a crisis. Design/methodology/approach The role of cryptocurrency in promoting macroeconomic equilibrium is approached through the lens of monetary theory. Moves away from macroeconomic equilibrium necessitate either a change in the average price of money or a change in the quantity of money, or a change in portfolio demand for money. Cryptocurrency promotes an increase, however this requires the alignment of policy regulating the use of cryptocurrency, reduction in taxes placed on the use of cryptocurrency and cryptocurrency protocol. Findings Cryptocurrency is unlikely to become legal tender, but it may alleviate macroeconomic fluctuations as a near money that provides liquidity and whose supply is sensitive to changes in demand to hold money and money-like substitutes. This role might be inhibited if policy stifles the development of cryptocurrencies and blockchain technology. Research limitations/implications New financial innovations like cryptocurrencies can be analyzed applying the equation of exchange in light of the mechanics of money creation under conditions of disequilibrium. Monetary disequilibrium may be promoted by policy that causes bottlenecks in financial markets. Originality/value Theory of monetary disequilibrium has broad implications for the development and regulation of financial markets. This theory has not been applied to the development of cryptocurrency markets.

Just Financial Markets?

2017 ◽  
Keyword(s):  
Financial Crisis ◽  
Financial Markets ◽  
Political Theory ◽  
Law And Economics ◽  
Well Being ◽  
The Self ◽  
Free Markets ◽  
Legal Frameworks ◽  
Economic Well Being

Well-functioning financial markets are crucial for the economic well-being and the justice of contemporary societies. The Great Financial Crisis has shown that a perspective that naively trusts in the self-regulating powers of free markets cannot capture what is at stake in understanding and regulating financial markets. The damage done by the Great Financial Crisis, including its distributive consequences, raises serious questions about the justice of financial markets as we know them. This volume brings together leading scholars from political theory, law, and economics in order to explore the relation between justice and financial markets. Broadening the perspective from a purely economic one to a liberal egalitarian one, the chapters of the volume explore foundational normative questions about how to conceptualize justice in relation to financial markets, the biases in the legal frameworks of financial markets that produce unjust outcomes, and perspectives of justice on specific institutions and practices in contemporary financial markets. Written in a clear and accessible language, the volume presents analyses of how financial markets (should) function and how the Great Financial Crisis came about, proposals for how the structures of financial markets could be reformed, and analyses of why reform is not happening at the speed that would be desirable from a perspective of justice.

Analisis Capital Structure dalam Keuangan Islam

2020 ◽  
Vol 7 (2) ◽  
pp. 201-228
Author(s):  
Muhammad Agus Salim ◽  
Ahmad Rodoni
Keyword(s):  
Capital Structure ◽  
Islamic Law ◽  
Structure Theory ◽  
Islamic Finance ◽  
Stock Exchanges ◽  
Screening Model ◽  
The Difference ◽  
Capital Structure Theory ◽  
A Company ◽  
The Capital Structure

This paper studies the current development of the capital structure theory, to explore the connection between this theory and the Islamic finance, and to investigate the connection between the capital structure and the process of syari`ah (Islamic law) screening in three stock exchanges of syari`ah. Here, this article employs a qualitative approach by delving other scholars’ theories that have studied the capital structure of the Islamic finance. Next, this paper demontates an important finding; that is, limitation is necessary for the use of debt in a company that operates on the basis of Islamic principles. In this regard, as a debt has to have a favor for asset, the company, which operates on the basis of Islamic principles, is not to go beyond the real asset. The difference of the syari`ah screening model in those three stock exchanges is influenced by some crucial factors in the way the company decides its syari`ah screening model. They are, such as the difference of a social structure in a country, its modification of the monetary industry, and its variance of the school of thought adhered by some Muslim learned people.

Financial Markets as Financial Systems: A Philosophical Dialogue between Offshore Tax Haven Islands and Systemic Failures

Pólemos ◽  
2020 ◽  
Vol 14 (2) ◽  
pp. 297-318
Author(s):  
Daniele D’Alvia
Keyword(s):  
Financial Markets ◽  
Self Regulation ◽  
Mixed System ◽  
Uncertainty Aversion ◽  
Financial Systems ◽  
Philosophical Dialogue ◽  
Tax Haven ◽  
Money Creation ◽  
The One ◽  
First Time

AbstractThis paper deals with financial markets as forms of financial systems. For the first time theorised under a Luhmannian paradigm, markets are conceptualised as financial systems informed by four main structures: risk, uncertainty, competition, and financial innovation. According to Frank Knight, risk is a measurable entity and can always be calculated, but uncertainty is unmeasurable. Nonetheless, uncertainty constitutes the main catalyst for money creation processes in modern economies. In other words, it underpins profit rather than undermining it. For this reason, the modern financial actor is destined to fail. It must deal with uncertainty if it wants to make a profit, but at the same time it can experience only uncertainty, due to its unmeasurable nature. This has caused a profound dilemma between ‘uncertainty-aversion’ paradigms and self-regulation approaches. The paper argues for a mixed system of hybrid regulation, on the one hand to save the environments of tax haven islands via more transparent policies to tax those same offshore companies, and on the other to promote a system of co-operation between financial operators and the state. This is the only way to promote auto-regeneration processes for the whole financial system, because the system itself has already been programmed to fail, and systemic failures produce contagious effects, showing a deeper interconnection of financial systems tout court as well suggesting a cure via a spontaneous mechanism of auto-regeneration, or autopoiesis.

scholarly journals Contemporary issues of form and substance: an Islamic law perspective

2019 ◽  
Vol 11 (1) ◽  
pp. 124-136 ◽  
Author(s):  
Mohamed Hamour ◽  
Mohammad Hassan Shakil ◽  
Ishaq Mustapha Akinlaso ◽  
Mashiyat Tasnia
Keyword(s):  
Design Methodology ◽  
Islamic Law ◽  
Islamic Finance ◽  
Content Type ◽  
Descriptive Research ◽  
The Difference ◽  
The Way

Purpose This paper aims to analyse the concept of form over substance and introduces the term substance gap to the literature. The substance gap is defined as the difference between the way a concept is expressed and its intended result. Besides, the study investigates the issue from both classical and contemporary viewpoints. Design/methodology/approach The methodology adopted in this paper is descriptive research. Findings This paper has depicted the substance gap in contemporary contracts and found that form is equally important as substance in Islamic finance contracts. This paper offers a fresh outlook on form and substance to highlight the importance of the issue and its significance. The findings of the study will help researchers address the issue at its roots and help them to bridge the gap between the form and substance of Islamic finance contracts. Originality/value This paper investigates the substance gap in contemporary contracts that exists between the fiqh rules and conditions of an Islamic contract, and their development and construction. Further, the gap could also be attributed to the pressure to cope with a complicated modern finance environment.

Islamic finance: legal frameworks, practices and shariah criteria review

2020 ◽  
Author(s):  
Asmadi Mohamed Naim ◽  
Mohamad Yazid Isa ◽  
Mohd Liki Hamid
Keyword(s):  
Real Estate ◽  
Capital Markets ◽  
Islamic Law ◽  
Islamic Finance ◽  
Islamic Banking ◽  
Legal Documents ◽  
Comprehensive View ◽  
Special Review ◽  
Legal Frameworks ◽  
Comprehensive Compilation

The book provides comprehensive compilation on Islamic legal documents related to Islamic financial system consists of legal statutes, frameworks, guidelines, circulars and internal compliant manual covering Islamic banking, takaful and Islamic capital markets. Brief description of those documents are laid down to assist non-legal background readers in having comprehensive view of Islamic finance legal system.Few special focuses are done to Shariah screening methodologies for stocks, Islamic fund and real estate with special review on few sukuk issuances as to familiarize reader with the principle terms and conditions (PTC) of the sukuk. Islamic finance is not just a system but it is a way to achieve the spirit of Shariah i.e. maqasid Shariah in providing prosperity to the society in blessing ways avoiding all prohibited elements as stated in Islamic law.

scholarly journals Islamic Financial Instruments and Law: Application of the Sharia Islamic Laws by the Courts of England the United Arab Emirates

2017 ◽  
pp. 48-57
Author(s):  
Валерий Федчук ◽  
Valeriy Fedchuk
Keyword(s):  
Financial Crisis ◽  
International Finance ◽  
United Arab Emirates ◽  
Islamic Law ◽  
Global Financial Crisis ◽  
Islamic Finance ◽  
Financial Assets ◽  
Financial Instruments ◽  
Free Zone ◽  
The Global Financial Crisis

The total amounts of Islamic financial assets has grown exponentially lately and it is important that it has happened in conditions of the global financial crisis. An increasing number of Islamic finance instruments were adopted in the new IF centers of London and Dubai, including its financial “free zone”, the Dubai International Finance Centre (DIFC), while many of them contain choice-of-law clause (English and DIFC) and jurisdiction clause. Due to the fact that the proper law of a contract can be only the law of a country or a jurisdiction, neither the English nor the DIFC courts can apply Islamic Law norms directly but both can apply them indirectly when it is recognized as relevant. They have already on several occasions demonstrated their willingness to apply principles of Sharia Law especially in determining whether an instrument, concluded with excess of power by one of its parties because it is ribawi or it does not comply with Sharia Laws. Accordingly, the present article is mainly devoted to the analysis of the problem of indirect application of Sharia norms by English and DIFC courts which is particularly relevant in the areas of foreign trade contracts and groups of companies.

scholarly journals Economic Activities Under Uncertainty: The Difference Between Speculation, Investment and Gambling

2020 ◽  
Vol 10 (1) ◽  
pp. 28
Author(s):  
Raphael Max ◽  
Alexander Kriebitz ◽  
Christoph Luetge
Keyword(s):  
Financial Markets ◽  
Conceptual Framework ◽  
Public Perception ◽  
Clear Distinction ◽  
Risk And Uncertainty ◽  
Economic Activities ◽  
The Public ◽  
Ethical Discourse ◽  
The Difference ◽  
Clear Line

In the ethical discourse about financial markets, the terms “investment”, “speculation” and “gambling” often seem confusing and lack a clear distinction. The inconsistent use of this terminology has concrete consequences for the public perception. We attempt to establish a concept which draws a clear line between these activities and can serve as a baseline for discourse about how to assess investment, speculation and gambling on a normative level. We analyze existing literature and develop a conceptual framework to provide an overview of the differences between investment, speculation and gambling. We conclude that gambling differs structurally from investment and speculation in terms of the classic distinction between risk and uncertainty and the separation between consuming and non-consuming activities. Moreover, we arrive at the conclusion that investment and speculation share too many similarities to be separated in a consistent way.

scholarly journals ISLAMIC FINANCE DOCTRINE: THE NATURE AND EVOLUTION (the end)

2018 ◽  
Vol 2018 (2) ◽  
pp. 65-78
Author(s):  
Oleg MOZGOVYI ◽  
◽  
Oleksii SUBOCHEV ◽  
Oksana YURKEVYCH ◽  
◽  
...  
Keyword(s):  
Financial Markets ◽  
International Finance ◽  
Asset Management ◽  
Islamic Law ◽  
Commercial Banking ◽  
Islamic Finance ◽  
Real Sector ◽  
Finance Industry ◽  
Financial Hedging ◽  
Political Economic

The article identifies basic models of Islamic finance industry and provides a critical assessment (compared to conventional finance) оf mechanism of their functioning. Despite having obvious positive aspects, such as limitation of speculative or risky securitization, focusing on financing the real sector of economy and encouraging the direct interrelationship between financial and productive sectors, in our view, the mechanism of Islamic economics in some ways is at variance with a number of fundamental principles of effective economic activity. Objective factors (demographic, political, economic) cause an increase of role and influence of the industry over regional financial markets and international finance and determine the relevance of further research in this area. Today, Islamic finance comprises such commercial areas as capital markets, asset management and insurance. They represent all segments of modern financial market – commercial banking, operations with equity and venture capital, trade financing, insurance and even financial hedging. Only a small share of Muslims’ financial relations is provided in accordance with Islamic law. Under conditions of introducing the convenient, liquid and standardized financial instruments and further improvement of regulation for financial markets, redistribution of resources in favor of Islamic financial markets, as well as rapid growth of their share in international finance are expected.

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