Islamic Finance

Risk sharing or risk transfer?

In Islamic finance investors make funds available to entrepreneurs on the basis of risk sharing rather than by means of contracts that confine all risks of business enterprise to the entrepreneurs. Loan financing, unlike financing on the basis of risk sharing (equity financing), requires borrowers to guarantee not only the periodic payments interest, but also the repayment of the principal amount of the loan. The dates on which payments need to be made, as well as the amount of the payments are specified in advance.

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Issues in Islamic and Conventional Finance – Chapter II