Impediments to Co-financing in Islamic Banks
Proposed Solutions and Risk Management
Keywords:
Co-financing, speculation, participation, Islamic banking, Islamic financing.Abstract
Early theorists of banking agreed that co-financing is a basic method that must be used by Islamic banks. They viewed it as an Islamic alternative to the prohibited interest-financing, as it relies on the principle of participation in profit and loss. However, in practice, Islamic banks have kept away from this type of financing due to its constraints and the risks involved.
This study seeks to propose solutions and techniques for managing such risks. It is divided into three sections. Section 1 introduces the financing forms in Islamic banking; section 2 highlights the current situation of co-financing in Islamic banks and its impediments; and section 3 presents risk management methods and proposed solutions to the problems of application of co-financing in Islamic banks. In brief, strengthening this type of financing can contribute to a real economic renaissance that reflects the Islamic economic thought.
