TY - JOUR

T1 - Can Islamic Injunctions Indemnify the Structural Flaws of Securitized Debt?

AU - Ebrahim, M. Shahid

AU - Jaafar, Aziz

AU - Omar, Fatma A.

AU - Salleh, Munzah Osman

PY - 2016/4/1

Y1 - 2016/4/1

N2 - Securitization enhances liquidity of debt contracts. However, its structural deficiency at origination has led to the freezing of its secondary market and failure of institutions holding the collateral. This paper builds on key cultural (i.e., Islamic) rulings to rectify flaws entrenched in securitized debt stemming from asymmetric information and agency issues. These injunctions help in the efficient underwriting of debt contracts across the globe to: (i) redeem its „toxicity‟; (ii) guarantee liquidity; (iii) alleviate fragility of the financial system; and (iv) promote economic growth. Finally, this study promotes a rethink of the current „Islamic‟ financial system from a narrow literalist juridical perspective to one that is grounded in financial economics

AB - Securitization enhances liquidity of debt contracts. However, its structural deficiency at origination has led to the freezing of its secondary market and failure of institutions holding the collateral. This paper builds on key cultural (i.e., Islamic) rulings to rectify flaws entrenched in securitized debt stemming from asymmetric information and agency issues. These injunctions help in the efficient underwriting of debt contracts across the globe to: (i) redeem its „toxicity‟; (ii) guarantee liquidity; (iii) alleviate fragility of the financial system; and (iv) promote economic growth. Finally, this study promotes a rethink of the current „Islamic‟ financial system from a narrow literalist juridical perspective to one that is grounded in financial economics

U2 - 10.1016/j.jcorpfin.2016.01.002

DO - 10.1016/j.jcorpfin.2016.01.002

M3 - Article

VL - 37

SP - 271

EP - 286

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

ER -