Technical Note
FINANCING THE MUSLIM WORLD: A PROPOSED CONCEPT FOR THE LONG-TERM INDEBTEDNESS OF MUSLIM COUNTRIES
INDUSTRY :-
AREA :FINANCE
ORGANIZATION :-
LENGTH :8
LUMS No :02-615-2018-2
PUBLICATION YEAR : 2018
ABSTRACT:
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 the economic benefit of it and how it contributes to global risk sharing.