Islamic Finance: The Way Forward
From ESCP Europe Finance Society,
Ludovico Buffo, Master Student
In 2008, while western governments were claiming for a more sustainable and regulated financial system, their counterparts in the Middle East were working towards a long-term global expansion plan for their ancient but efficient model of capital distribution: Islamic Finance.
How is Islamic Finance doing better than capitalism? The answer lies in the sukuk-based financial model that prefers real economy over complex derivatives solutions. Sukuk refers to the most common Islamic form of debt, roughly comparable to a bond instrument that, however, does not provide a fixed interest rate of remuneration. In fact, the concept of interest rate is forbidden by the Shariah law (Riba principle), thus the capital raised through sukuk is remunerated with a floating rate based on the return of the underlying real asset.
The adoption of Shariah-complaint financial instruments might represent a tremendous opportunity for western countries to attract foreign investments. In fact, Sovereign Wealth Funds…
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