Islamic Finance and Asset Recycling
Module 9 of the Annex in Asset Recycling.
Financing is a process of providing funds for business activities, making purchases, or investing. Conventional finance achieves this by leveraging the time value of money (TVM) whereas Islamic finance generally achieves this by leveraging the income stream generated from an underlying asset or commodity. By its nature, Islamic finance involves using traditional investment techniques and structures (that comply with the principles of Shari'ah) to leverage the income stream generated from an asset or commodity thus creating arrangements that work in ways that are analogous to, and which achieve the economics of, modern conventional finance. This is what is meant when Islamic finance is described as being "asset-based" financing.
Islamic finance is also often described as involving (even requiring) "risk-sharing". As profit cannot be pre-determined or assured, an Islamic financial institution must assume part of the risks of a given transaction. The financier's assumption of some commercial risks (as opposed to credit risk) relating to the underlying asset will be necessary to ensure Shari'ah compliance. On the other hand, a financier in a conventional financing will seek to ensure that, so far as possible, it does not take on any commercial risk relating to the borrower or the asset it is providing finance for. Find more below, or visit the Guidelines for Implementing Asset Recycling Transactions section and Content Outline, or Download the Full Report.
Sections
Note/s: This is a new section of the PPPLRC website and is currently in draft form. Your feedback is welcome: If you would like to comment on the content of this section of the website or if you have suggestions for links or materials that could be included please contact us at ppp@worldbank.org. To find more, visit the Guidelines to Implementing Asset Recycling Transactions Section Overview and Content Outline, or download Full Version of the Report.
