Re: Interest Free Loans For Muslims
I work in the financial sector. This headline is exactly the type of knee jerk, emotionally laden, twisted assertion that we just watch play out this last election cycle.
Finance is all about structuring risk and liquidity and "buying" and "selling" that risk and liquidity.
You are an insurance company with hundreds of millions in long term liabilities and a regulatory requirement to hold reserves against that? How do you earn enough on the premiums to pay the future claims? Particularly in a low interest environment? Swaps are one answer. You swap out predictable, long term payment streams to another company in an environment with unpredictable payment streams. You swap your stable, low risk income stream for higher risk streams with a larger lotential for returns. The other company gets predictable streams that allow their EPS to be manageable, particularly if the payment streams aren't related to their primary business.
Structured finance allows banks that hold long term boring stable real estate loans to package them in bundles, create strada with different risk levels, and securitize it and sell it to other companies. A long term asset (a loan is an asset to a bank) is now converted to a short term equity.
Islamic finance simply has different rules regarding transfer of risk and payment of money for capital (not allowed). But sharing in risk is allowed. That's my understanding. And finance is all about risk transfer and liquidity so why not address that market?
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