Incentive Structure of Financing a Project: An Islamic Finance Approach
Financing is an important component in any project. Without finance, it is impossible to run any project as it is considered the lifeblood of the business. But due to the presence of predetermined rate of interest, economists have provided alternative approach for financing the project. In this pap...
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Format: | Article |
Language: | English |
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EconJournals
2017-01-01
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Series: | International Journal of Economics and Financial Issues |
Online Access: | http://mail.econjournals.com/index.php/ijefi/article/view/3324 |
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author | Fayaz Ahmad Lone Abdul Quadir |
author_facet | Fayaz Ahmad Lone Abdul Quadir |
author_sort | Fayaz Ahmad Lone |
collection | DOAJ |
description |
Financing is an important component in any project. Without finance, it is impossible to run any project as it is considered the lifeblood of the business. But due to the presence of predetermined rate of interest, economists have provided alternative approach for financing the project. In this paper a model using Profit and Loss Sharing (PLS) system and comparison of it with the conventional financing model is developed. Thrust in this paper is towards establishing a new theoretical reasoning why PLS system is less frequently used in Islamic banking in terms of net worth of the borrower. It has been argued that agency problem like moral hazard is still acute in PLS system. An idea has been discuss to solve this problem using game theoretic tool.
Keywords: Entrepreneur, Financing, Project, PLS, Model
JEL Classifications: D92, L26
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first_indexed | 2024-04-10T14:09:29Z |
format | Article |
id | doaj.art-0f2ad35cc0f24b2db67a599197dc8c33 |
institution | Directory Open Access Journal |
issn | 2146-4138 |
language | English |
last_indexed | 2024-04-10T14:09:29Z |
publishDate | 2017-01-01 |
publisher | EconJournals |
record_format | Article |
series | International Journal of Economics and Financial Issues |
spelling | doaj.art-0f2ad35cc0f24b2db67a599197dc8c332023-02-15T16:09:50ZengEconJournalsInternational Journal of Economics and Financial Issues2146-41382017-01-0171Incentive Structure of Financing a Project: An Islamic Finance ApproachFayaz Ahmad Lone0Abdul Quadir1Prince Sattam Bin Abdulaziz UniversityBITS Pilani Hyderabad Financing is an important component in any project. Without finance, it is impossible to run any project as it is considered the lifeblood of the business. But due to the presence of predetermined rate of interest, economists have provided alternative approach for financing the project. In this paper a model using Profit and Loss Sharing (PLS) system and comparison of it with the conventional financing model is developed. Thrust in this paper is towards establishing a new theoretical reasoning why PLS system is less frequently used in Islamic banking in terms of net worth of the borrower. It has been argued that agency problem like moral hazard is still acute in PLS system. An idea has been discuss to solve this problem using game theoretic tool. Keywords: Entrepreneur, Financing, Project, PLS, Model JEL Classifications: D92, L26 http://mail.econjournals.com/index.php/ijefi/article/view/3324 |
spellingShingle | Fayaz Ahmad Lone Abdul Quadir Incentive Structure of Financing a Project: An Islamic Finance Approach International Journal of Economics and Financial Issues |
title | Incentive Structure of Financing a Project: An Islamic Finance Approach |
title_full | Incentive Structure of Financing a Project: An Islamic Finance Approach |
title_fullStr | Incentive Structure of Financing a Project: An Islamic Finance Approach |
title_full_unstemmed | Incentive Structure of Financing a Project: An Islamic Finance Approach |
title_short | Incentive Structure of Financing a Project: An Islamic Finance Approach |
title_sort | incentive structure of financing a project an islamic finance approach |
url | http://mail.econjournals.com/index.php/ijefi/article/view/3324 |
work_keys_str_mv | AT fayazahmadlone incentivestructureoffinancingaprojectanislamicfinanceapproach AT abdulquadir incentivestructureoffinancingaprojectanislamicfinanceapproach |