Can Islamic Injunctions Indemnify the Structural Flaws of Securitized Debt?

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  • M. Shahid Ebrahim
    University of Durham, Durham, UK
  • Aziz Jaafar
  • Fatma A. Omar
    Institute of Finance Management, Tanzania
  • Munzah Osman Salleh
    Central Bank of Malaysia, Malaysia
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
Original languageEnglish
Pages (from-to)271-286
JournalJournal of Corporate Finance
Volume37
Early online date9 Jan 2016
DOIs
Publication statusPublished - 1 Apr 2016
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