Risk-sharing versus risk-transfer in Islamic finance: an evaluation

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Some recent writings on Islamic finance have resuscitated the old ‘no risk, no gain’ precept from the earlier literature in the wake of current financial crisis. They argue that the basic reason for the recurrence of such crises is the conventional interest-based financial system that subsists purely on transferring of risks. In contrast, Islam shuns interest and promotes sharing of risks, not their transfer. The distinction is used to make a case for replacing the conventional system with the Islamic; for that alone is thought as the way to ensuring the establishment of a just and stable crisis free economic system. Islamic banks have faced the current crisis better than the conventional is cited as evidence. The present paper is a critique of this line of thought. It argues that risk-sharing is not basic to Islam. It encourages profit sharing of which sharing of risk is a consequence not the cause. The paper concludes that the case is for reform, not for replacement, of the current debt dominated system marked with increasing duality.
Financial crisis , Risk-sharing , Risk-transfer , Islamic banking , KL declaration
Hasan, Zubair. (2015). Risk-sharing versus risk-transfer in Islamic finance: an evaluation. Journal of Islamic Banking & Finance, 32 (2), pp. 11-24.
International Association of Islamic Banks Karachi

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