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Risk-sharing versus risk-transfer in finance: A critique

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  • Hasan, Zubair

Abstract

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 rests purely on transfer 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 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. This paper is a critique of this line of argument and concludes that the case is for reform not for replacement of the current system marked with increasing duality.

Suggested Citation

  • Hasan, Zubair, 2014. "Risk-sharing versus risk-transfer in finance: A critique," MPRA Paper 58006, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58006
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    References listed on IDEAS

    as
    1. Hasan, Zubair, 2014. "Islamic Banking and Finance: An Integrative Approach," OUP Catalogue, Oxford University Press, number 9789834710453.
    2. Muhammad Umer Chapra, 2014. "Morality and Justice in Islamic Economics and Finance," Books, Edward Elgar Publishing, number 15817.
    3. Mohammad Umer Chapra, 2009. "The Global Financial Crisis: Can Islamic Finance Help? الأزمة المالية العالمية: هل يساعد التمويل الإسلامي؟," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Issues in the International Financial Crisis from an Islamic Perspective-05 قضايا في الأزمة المالية العالمية من منظور إسلامي, edition 1, chapter 2, pages 11-18, King Abdulaziz University, Islamic Economics Institute..
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    More about this item

    Keywords

    Financial crisis; Risk-Sharing; Risk-Transfer; Islamic system; KL Declaration;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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