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...
| Main Authors: | , |
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| Format: | Proceeding Paper |
| Language: | English |
| Published: |
2011
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/67446/ http://irep.iium.edu.my/67446/1/67446_Making%20Mudarabah%20Workable.pdf |
| _version_ | 1848786759035387904 |
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| author | Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath |
| author_facet | Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath |
| author_sort | Mustaffa Kamil, Nazrol Kamil |
| building | IIUM Repository |
| collection | Online Access |
| 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. |
| first_indexed | 2025-11-14T17:14:08Z |
| format | Proceeding Paper |
| id | iium-67446 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T17:14:08Z |
| publishDate | 2011 |
| recordtype | eprints |
| repository_type | Digital Repository |
| 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 Proceeding Paper 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/ |
| spellingShingle | HG3368 Islamic Banking and Finance Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Making Mudarabah workable: altering risk-return profiles through equity Kickers |
| title | 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_short | Making Mudarabah workable: altering risk-return profiles through equity Kickers |
| title_sort | making mudarabah workable: altering risk-return profiles through equity kickers |
| topic | HG3368 Islamic Banking and Finance |
| 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 |