Details

Technical Note

FINANCING THE MUSLIM WORLD: A PROPOSED CONCEPT FOR THE LONG-TERM INDEBTEDNESS OF MUSLIM COUNTRIES

Syed Aun Raza Rizvi

INDUSTRY : Financial Instruments

AREA : Finance

ORGANIZATION : N/A

LENGTH : 8

LUMS No : 02-615-2018-2

PUBLICATION YEAR : 2018

KEYWORDS:

Islamic finance, economic growth, GDP linked paper, equity, risk sharing, financial instruments

DESCRIPTION:

Last few decades have seen an earnest effort in developing a viable set of Islamic financial products and instruments that would help promote economic growth for Muslim countries. Surprisingly an aspect of immense importance has been left ignored is the focus on developing products and instruments for long term financing needs for Muslim countries. A study of the Muslim majority nations across the world highlights the heavy reliance on foreign debt of these nations in general. The primary source of this indebtedness is multilateral financing primarily based on high interest rates. This heavy reliance on interest based debt has not only stunted the economic growth but has also worsened the conditions of their population. This note brings to the forefront a novel approach to long-term financing; the concept of a GDP linked paper, which is equity in nature and allows for enhanced risk sharing based sovereign financing. This note aims to introduce students to the evaluation of the efficacy of GDP linked risk sharing instruments for Muslim countries, which in recent past have witnessed sudden stops and financial turmoil. The mechanism discussed in the note studies what the economic benefit of it are and how it contributes to global risk sharing.

LEARNING OBJECTIVES:

This note aims to introduce students to the evaluation of the efficacy of GDP linked risk sharing instruments for Muslim countries, which in the recent past have witnessed sudden stops and financial turmoil. The mechanism discussed in the note studies what the economic benefit of it are and how it contributes to global risk sharing.

SUBJECTS COVERED:

Finance