reconsidering mudarabah contracts in islamic finance what is the economic wisdom (hikmah) of...

8/2/2019 Reconsidering Mudarabah Contracts in Islamic Finance What is the Economic Wisdom (Hikmah) of Partnership-Base

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ReconsideringMudarabah

Contracts in Islamic Finance:What is the Economic Wisdom

(Hikmah) of Partnership-based

Instruments?

Shinsuke Nagaoka

Abstract: In Islamic economics and finance, a broad consensus has been reached

that, out of all the financial instruments, partnership-based instruments are the

most preferable, which is justified by the way any risk involved is properly shared by

both parties. This risk sharing is highly consistent with the general spirit of Islamic

teachings. However, when the negative effects of securitization, which appears to

be a risk-sharing instrument, as seen in the subprime mortgage crisis in recent

years, are taken into consideration, characterizing partnership-based instruments asrisk-sharing ones is not necessarily sufficient to describe their important economic

implications. Therefore, this paper aims to reconsider those implications by

thinking back to partnership contracts in pre-modern times and then reformulating

their economic wisdom (hikmah), so that for future Islamic financial practice.

JEL Classifications: G20, G21, P47, P52, O53.

I. Introduction

In Islamic economics and finance, a broad consensus has been reached

that, out of all the financial instruments, partnership-based instruments

are the most preferable. This consensus is unanimously supported from

the viewpoint of juristic propriety; it is also supported by an economic

Shinsuke Nagaoka, Postdoctoral Research Fellow of the Japan Society for the Promotion of

Science (JSPS) at the Centre for Southeast Asian Studies, Kyoto University, Japan.

2010, international association for islamic economics

Review of Islamic Economics, Vol. 13, No. 2, 2010, pp. 6579.


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66 Review of Islamic Economics, Vol. 13, No. 2,2010

argument relating to the economic doctrine of Islam, namely that the use

of partnership-based instruments is justified by the way any risk involved is

properly shared by both parties. This risk sharing is highly consistent withthe general spirit of Islamic teachings.

However, when the negative effects of securitization, which appears

to be a risk-sharing instrument, as seen in the subprime mortgage crisis in

recent years, are taken into consideration, characterizing partnership-based

instruments as risk-sharing ones is not necessarily sufficient to describe their

important economic implications. Therefore, this paper aims to reconsider

those implications by thinking back to partnership contracts in pre-modern

times and then reformulating their economic wisdom (hikmah) for future

Islamic financial practice.

II. Partnership-Based Instruments in Islamic Economics

Since the surge of academic interest and research into the Islamic economic

system from the mid-twentieth century (generally referred to as Islamic

economics), there appears to have been a consensus about which financial

instruments should be adopted in the reconstructed Islamic economic

system. Most Islamic economists encouraged the use of partnership-based

financial instruments like mudarabah and musharakah contracts.

The mudarabah contract is a form of contract in which one partyprovides capital with which another party undertakes some business; the

former is termed rabb al-maland the latter mudarib. Any profit from the

venture is distributed between the parties in a ratio agreed beforehand,

while any loss is entirely borne byrabb al-malunless mudaribhas a defect

(see Figure 1).

Figure 1: Principle ofMudarabah

rabb al-mal

mudariblabour

capital

Business

distributed in a pre-

determined ratio

borne byrabb al-mal

profit

loss

The musharakah contract is a form of partnership in which multiple

parties invest. In Islamic finance, sharikat al-[inan is used as a variation of

musharakah. Any profit is distributed between the parties in a ratio agreed


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67Review of Islamic Economics, Vol. 13, No. 2,2010

beforehand (according to the Hanafiand Hanbalischools of Islamic law), or

shared in proportion to the amount of investment (according to the Maliki

and Shafi[ischools). There is consensus among the schools that any loss isdistributed in proportion to the individual parties share in the investment.

A right to participate in managing their business partnership is given to

investors, but this right is entrusted to each investor (see Figure 2).

Figure 2: Principle ofMusharakah

investor

investorlabour

capital

Business

pre-determined

ratio or amount

of investment

borne in

proportion to the

amount of

investment

profit

lossinvestorlabour/capital

One of the early Islamic economists, Qureshi, had already mentioned

partnership-based banking systems in a work published in 1945: Islam

prohibits interest but allows profits and partnership. If the banks, insteadof allowing loans to the industry, become its partners, share the loss and

profit with it, there is no objection against such banks in the Islamic system

(Qureshi, 1945: 158-9).

Around the same time, Ahmad (1947: 170) also stated his preference

for partnership-based systems: The shirakat1 banks would lend money to

industry and commerce on the basis of shirakat, that is, they would share the

profit with their debtors rather than burden industry and commerce with a

fixed rate of interest.

According to an earlier overview by Siddiqi (1981) this consensus withregard to the most preferable financial instruments was widely shared bothby experts in Islamic jurisprudence and scholars specializing in economicsuntil the end of the 1960s. For example, al-Sadr (1977 [1969]) formulatedthe partnership-based banking system as a preferable Islamic economicsystem; Uzair (1955) presented the core mechanism of the partnership-basedbanking system from the viewpoint of economics, and Siddiqi himself (1983[1969]) the system in his book and developed it to suit the modern bankingsystem under the name of two-tier mudarabah (Siddiqi, 1983 [1969]) (see

Figure 3).


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Figure 3: two-ier Mudarabah for Modern Banking

rabb al-mal mudarib

rabb al-mal mudaribbankliability side asset side

III. Parnership-Based Insrumens in Islamic Finance

Experience through the growth of Islamic finance in the 1970s showed that,

in practice, partnership-based instruments are not necessarily suitable for

most aspects of Islamic finance, particularly its asset side. The Middle East

and Malaysia did not in fact adopt partnership-based instruments as core

financial products, preferring mostlymudarabah contracts, which are not

partnership-based.2

Nevertheless, most Islamic economists and also many practitioners

who deal in non-partnership-based financial operations on a daily basis

firmly hold that partnership-based instruments are the ideal financial

instruments for the Islamic economic system. For example, al-Ghamdi of

Al-Rajhi Bank in Saudi Arabia argues (cited in Sum, 1995: 95) that, while the

present emphasis on non-partnership-based financial instruments is accept-

able, it should be phased out once Islamic finance grows into a much bigger

and more developed system. This comment appears to imply that non-part-

nership-based instruments should be replaced by better instruments, that is,

partnership-based instruments. Several Islamic banks in the Gulf countries,

are looking to emphasize change in their operations from non-partnership-

based instruments to partnership-based ones. Warde (2000: 134) reports

that, in response to criticism of non-partnership-based instruments, many

Islamic banks started phasing out the elements of such instruments, par-

ticularlymurabahah contracts, which had been subject to criticism.

Thus, partnership-based instruments have maintained their status

as the preferred option for Islamic economic transactions throughout the

history of Islamic economics and Islamic financial practice.

IV. Economic Wisdom of Parnership Conracs in Exising Lieraures

What makes partnership-based instruments the ideal, preferred option? Of

course, in juristic terms it can be explained easily by referring to the textual


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sources which underpin the legitimacy of partnership-based instruments.

This paper mainly focuses on the economic advantage of partnership-based

instruments in light of their conformity with the ideals of Islamic teachings.As mentioned above, partnership-based instruments have a particular

profit-sharing and a loss-sharing procedure (Siddiqi, 1985): any profit from

ventures based on murabah contracts is distributed between both parties on

the basis of a previously agreed upon ratio, while any loss is entirely borne

by the rabb al-mal(capital provider); similarly, any profit from musharakah

contracts is distributed either on the basis of a ratio previously agreed by the

parties or in proportion to the partners share of investment, while any loss

is borne in proportion to the amount invested.

The essential feature of profit-loss-sharing contracts is that thecontracted parties share in the outcome of the venture. In terms of

economics, any risk involved in partnership-based instruments is shared by

the contracted parties, meaning that the parties right to access any profit

resulting from the venture is based on their having carried a reasonable risk

of loss. As many Islamic economists and practitioners working at Sharah

divisions of Islamic banks emphasize, this sort of risk-sharing is said to be

highly consistent with one of the fundamental notions of Islamic teachings

(Bendjilali, 1996: 44; Kahf and Khan, 1992: 22). Therefore, risk-sharing

has been considered as the economic wisdom of partnership contracts inexisting literatures.

V. Some Criticisms of Partnership-Based Contracts

Partnership-based instruments have been criticized from both theoretical

and practical perspectives. Criticisms of the practical difficulties with

partnership-based instruments have attracted most attention. However,

I believe that several of the theoretical criticisms, which I briefly outline

below, contain some arguments that are useful, and which I will pick up, to

help economic wisdom of partnership contracts.

5.1. Marxist criticisms

Haque (1985: 215-22) in the light of Marxist economics, makes an analogy

between rabb al-mal and mudarib on the one hand and, on the other,

capitalists and labourers or between developed and developing countries.

He argues that the rabb al-mal can derive unfair and excessive profits

from partnership-based instruments. He concludes that the dyadic

relationship resulting from the use of partnership-based instruments leads


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to macroeconomic inconsistencies as typified by the imbalance between

developed and developing countries.

However, this argument has several flaws. First, with respect to theexploitative nature of mudarabah contracts, Haques critique does not

necessarily hold true: for the generality of partnership-based instruments,

the rule is that the profit-sharing rate is not always determined to the rabb

al-mals advantage at the expense of the mudarib, rather, it is negotiable

between the parties. Second, there is a huge jump in Haques reasoning to

the macroeconomic effects of the dyadic relationship.

Nevertheless, it seems worthwhile to reexamine both points raised by

Haque. The argument about the exploitative nature of the rabb al-malneeds

to be reexamined with regard to the fundamental Marxian theorem (FMT)formulized by two Japanese mathematical Marxist economists, Okishio

(1963) and Morishima (1973)3. They revealed the exploitative nature of the

ordinary economic exchange of commodities premised on neo-classical

economics. As to the second point, although the macroeconomic effects

of partnership-based instruments have never been logically examined, it

is extremely important to examine such effects when considering Islamic

financial practices as part of a comprehensive Islamic economic system. We

need to ascertain whether the macroeconomic effects of partnership-based

instruments are indeed positive as most Islamic economists would like tobelieve or negative, as pointed out by Haque.

5.2. Incentive problem

The second criticism relates to the microeconomic structure of partnership-

based instruments. As indicated by many studies, the use of partnership-

based instruments in Islamic finance gets entangled in the incentive

problem, implying that such instruments cannot result in the most efficient

solution owing to the asymmetry of information between rabb al-maland

mudarib. Generally, asymmetric information leads to adverse selectionbefore a contract is entered into, and moral hazards afterwards. It is rightly

said that the unpopularity of partnership-based instruments in the practice

of Islamic finance is due to the theoretical implication of the asymmetry of

information between the parties involved being relatively larger than that

in the case of parties involved non-partnership-based instruments. Further,

the cost for reducing such asymmetry (for example, the monitoring cost)

is higher (Khan, 1987: 151). Thus, rabb al-malneeds to bear the additional

cost of monitoring a mudaribs behaviour in order to induce him to manage

capital efficiently.


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Although many studies prevent theoretical arguments promising to get

round the incentive problem, both in conventional and Islamic economics,4

they are framed on their views on analysis of the dyadic relationship betweenrabb al-maland mudarib. However, it appears to be more important to consider

the kind of partnership, since the impact of asymmetry of information is

dependent on that. For example, the impact of asymmetric information in

the case of partnership between 100 rabb al-mal and one mudarib would

be different from that in the case of one rabb al-maland one mudarib. The

incentive problem inherent in the partnership-based instruments available to

Islamic finance should be reexamined from this viewpoint.

5.3. Shari[aharbitrageAlmost all instruments used in modern Islamic finance are financial prod-

ucts reconstructed and recompiled on the pattern of commercial contracts

used in the pre-modern Islamic world or accepted by pre-modern Islamic

jurisprudence. Owing to the rapid growth and diversification of Islamic

financial practice, many new financial instruments (e.g.,bay[ al-dayn, bay[

al-ina, sukuk, tawarruq, Islamic derivatives, etc.) have been demanded,

innovated, and welcomed in the financial practitioners field. Some scholars

criticized the manner in which these innovations were taking place, pointing

out that these innovations merely adopted the premodern heritage in termsof a commercial contractual form, lamenting that they did not succeed in

capturing the substance (economic wisdom, hikmah) of the premodern

contracts. El-Gamal (2006) terms such innovation as Shari[ah arbitrage.

El-Gamal (2006: 148-9) defines Shari[ah arbitrage as forbidding

some transaction, and then permitting it in slightly modified form, with

unaltered substance, and in a later article El-Gamal (2007) explains more

concretely: the practical solution which I call Shari[ah arbitrage is to

use legal devices to restructure interest-bearing debt, collecting interest in

the form of rent or price mark-up. Designing such instruments and theircertification as interest free constitutes the bulk of Islamic finance.

El-Gamal (2006) selects several financial instruments and criticizes

them as Shari[ah arbitrage and then presents several proposals for a

desirable system of Islamic finance. These proposals are based on his

original analysisconducted using the framework of modern economics

on the substantial economic meaning of economic doctrines in Islam (e.g.,

prohibition of riba and gharar), which provide the basic framework for

the pre-modern contracts. He mentions partnership-based instruments


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and in particular criticizes the existing partnership-based deposit accounts

in Islamic banks using the two-tier mudarabah and then proposes a new

corporate structure for Islamic financial institutions based on mutualbanking (see El-Gamal, 2006: 155-7 and 166).

In his argument on partnership-based instruments, however, El-Gamal

does not sufficiently develop his thinking in accordance with the result of

his own analysis of the substantial meaning of (Islamic) economic doctrines.

His proposal for partnership-based instruments in present financial practice

is accordingly lacking in explanatory efficacy. Therefore, the substantial

meaning of partnership-based contracts needs to be examined in greater

detail by thinking back to the economic wisdom (hikmah) of such contracts

in pre-modern times.

VI. two-Edged Blade of Risk-Sharing Insrumens in Convenional

Finance

Characterizing partnership-based instruments in economic terms as risk-

sharing does reflect the ideals of Islamic teachings to some degree. However,

when the negative side of risk-sharing instruments used in conventional

finance is taken into consideration (especially the negative effects of

securitization, which appears to be one of the risk-sharing instruments in

conventional financing, as illustrated by the recent subprime mortgagescrisis), describing Islamic partnership-based instruments as risk-sharing

cannot be fully appropriate. Rather, it can be argued that the economic

wisdom of Islamic partnership-based contracts needs to be re-examined

by taking into account some of the criticisms mentioned above so as to

adequately distinguish partnership-based investments in Islamic finance

from securitized instruments in conventional finance.

Prior to this reconsideration, I will briefly review the merits of risk-

sharing instruments in conventional finance, before stating their negative

aspects, revealed in the subprime mortgages crisis.The common purpose of these instruments is to provide adequate

liquidity to those engaged in business. They enable access to a significant

amount of funds by mitigating risk, which is shared by the investors in the

form of shares or securities. At the same time, these instruments also enable

individual investors to join in a venture with small amount of capital. It is

rightly said that such instruments, particularly the legal status and structure

of joint stock companies, propelled the early transition to a capitalist econ-

omy in the Western countries in the eighteenth and nineteenth centuries.


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However, the recent subprime mortgages crisis has revealed that the

use of risk-sharing instruments can result in risks, including those arising

from using these instruments, being scattered across different business invarious sectors of the economy. Further, once the negative impacts occur not

only in a particular venture but also anywhere in the chain of risk-sharing,

their influence, particularly at the macroeconomic level, easily spreads to

other businesses in other sectors. This kind of negative effect of risk-sharing

is not confined to subprime mortgages; it is implicated in several events

associated with risk-sharing instruments (e.g. international turmoil from a

turndown in stock prices). As Otaki (2008: 109) clearly points out securitized

instruments, transfer risk from banks to ordinary investors or citizens, have

the potential to cause more harmful effects because this is a transfer fromthose who have enough knowledge to manage risk to those who do not; that

can increase the extent of asymmetry of information in the system, which,

in turn, results in risk-scattering. Thus, risk-sharing instruments are a sort

of two-edged sword with the risk-sharing positive effects of risk-sharing

and the negative ones of risk-scattering.

VII. Reconsidering the Economic Wisdom of Partnership-Based

Contracts

As we have just seen, characterizing partnership-based instruments asrisk-sharing ones is not sufficient to distinguish the Islamic partnership-

based instruments from conventional risk-sharing instruments. This is

particularly true of the contemporary innovations in Islamic finance where

such partnership-based instruments like sukuk al-mudarabah and sukuk

al-musharakah are very similar to conventional risk-sharing instruments. It

is accordingly difficult to counter the criticisms outlined above, for, insofar

as partnership-based instruments are both risk-sharing and risk-scattering,

at the same time, they do not necessarily promote positive macroeconomic

effects, and in todays world where financial liquidities are provided bymore segmentalized shares or securities, the possibility of an increase in

asymmetry of information has become more crucial. If the promoters of

such partnership-based instruments continue to regard them as the most

preferable, they need to explain if and how their potentially negative effects

can be avoided.

If partnership-based instruments are indeed Islamically preferable,

there must be some substantial economic wisdom behind their risk-sharing

properties. I believe that by thinking back to the partnership contracts in


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pre-modern times, and clarifying the substantial wisdom in them, it will

help to improve partnership-based instruments in present Islamic financial

practice. Note that the following argument does not necessarily intend todeny the existing characterization of partnership-based instruments as

risk-sharing. Rather, it intends to reformulate it from the macroeconomic

aspect.

Many studies point out several differences between the original part-

nership contracts in pre-modern times and those reconstructed in Islamic

finance today as partnership-based instruments. Numerous fatawa (legal

opinions) issued by Islamic financial institutions for the purpose of the

reconstruction of original partnership-based instruments into forms suit-

able for modern financial practice also show that there are many differencesbetween them. Among these differences, one that merits particular attention

concerns the concept of corporate persona or entity in partnership contracts.

As Udovitch (1988, 98-9) points out, in classical Islamic jurisprudence, the

concept of a corporate entity (legal persona) in partnership-based instru-

ments was not well developed, so that corporate structures did not become

prevalent in many fields of economic activity in the pre-modern Islamic

world. The historical fact that, in the pre-modern Islamic world, later gen-

erations, as a rule, did not hold on to family businesses, also explains the

underdevelopment of the concept of a corporate entity in classical Islamicjurisprudence (Kato, 2002).

Although the argument as to the existence of the concept of corporate

entity in classical Islamic jurisprudence seems to be still controversial (see

El-Gamal, 2006: 119) and there has not been enough research about it in

relation to modern partnership-based instruments in Islamic finance,5 it

is obvious that the underdevelopment of the concept of corporate entity

has been used to explain why the pre-modern Islamic world came to be left

behind by the West (Greif, 2005; Kuran, 2003).

However, if we look at the structural character of classical partnershipcontracts from the macroeconomic aspect, it is seen to have another, positive

implication. Indeed, the underdevelopment of the concept of corporate

entity restricts the continuity and scale of the relevant business. On the other

hand, it also, relatively, limits the beneficiaries of the relevant business. From

the macroeconomic aspect, this feature of classical partnership contracts

(which lacked the concept of corporate entity) has the consequence that

other economic activities are protected: even if a business in question


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conducted by a partnership-based instrument fails, the chain of negative

effects on the macro economy would be relatively moderated because those

sharing the risk involved in the business are limited, in contrast to the case ofsecuritized products, which are characterized by successive transfer of risks.

Therefore, it can be said that the classical partnership contracts, which did

not sufficiently develop the concept of corporate entity, have a discriminative

economic feature that restrains risk-scattering. This reformulated economic

wisdom derived from partnership contracts can be called as risk-sharing

without risk-scattering.

VIII. Concluding Observaions: toward New Parnership-Based

Insrumens in Islamic FinanceHow can we implement new partnership-based instruments based on the

risk-sharing without risk-scattering? Generally speaking, considering the

current trend of Islamic finance, it is not realistic to introduce instruments

that restrict both the spatial and time-series scale of risk-sharing because,

in most fields of practice, the positive effect of risk-sharing is dominant as

against to the negative effect of risk-scattering. Therefore, if such instru-

ments were to replace the existing ones, there would result a liquidity

crunch. Indeed, the mainstream proposal for alleviating the negative risk-

scattering effect in Islamic financial practice is to enhance the ability tomonitor and screen.

However, the economic wisdom of partnership contracts argued above

has some usefulness in that it reminds us of the harmful aspects of the current

trend in Islamic finance, which is now replicating securitized conventional

finance. Furthermore, it may lead us to cast a critical eye on this current

trend of Islamic finance, which is heading toward a comprehensive financial

system competitive with conventional finance. Some scholars like El-Gamal

and Asutay believe, if I understand them correctly, that the very scope of

Islamic finance should be reconsidered. El-Gamal (2006: 174) proposes thatIslamic finance should be confined to the fields in which the substantial eco-

nomic wisdom of financial instruments is realized. This implies that fields

in which Shari[ah arbitrage is dominant should be removed from the list of

fields available for Islamic financial practice. This proposal is rather radical,

but surely right. However, it may be more feasible to implement Asutays

proposal that Islamic finance should strive strongly to develop in the field

of community banking and ethical investment (Asutay, 2007: 16; 2008). This


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paper further suggests the financing of small and medium enterprises. These

suggestions as financing fields offer opportunities of a scale appropriate for

introducing new partnership-based instruments based on the reformulatedeconomic wisdom of risk-sharing without risk-scattering.

People might think that such a remodeling of Islamic finance will

surrender to tough capitalism. However, the experience of overseas Chinese

capital both in the past and present teaches us that a corporate structure

based on a robust corporate entity is not a necessary condition for economic

development Chinese businesses have been conducted successfully using

certain types of risk-sharing without risk-scattering instruments. Moreover,

these businesses are not necessarily carried on by subsequent generations of

the same family (Hamilton, 1985). In light of this, it can be said that Islamiceconomics and Islamic financial practice may now be entering an era that

will be free from the capitalistic way of thinking.

Notes

1. Here shirakat means contracts on the principle of musharakah.2. This preference for non-partnership-based instruments can be observed almost

throughout the period beginning from the 1980s until now. Examples are presented inTables 1, 2 and 3.

3. The FMT showed a correspondence between the existence of exploitation and the

existence of positive profit derived from equation of marginal productivity of labourand capital, which is generally formula of microeconomics.4. First work theoretically mentioning to the incentive problem in Islamic economics

would be Khan (1985).

5. For example, even Zuhaylis (1997) comprehensive commentary on Islamic jurisprudence

does not have a clear explanation of the concept of corporate entity.

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Appendix

table 1: Bank Islam Malaysia Berhad: Mode of Financing (% o toalFinancing)

Year Murabahah*Mudarabah

+ MusharakahIjarah Ohers toal

1984 86.3 4.3 9.3 0.1 100

1985 91.2 2.9 5.9 0.0 100

1986 92.5 2.5 4.8 0.2 100

1987 93.7 2.4 3.4 0.5 100

1988 94.3 0.1 3.1 2.5 100

1989 94.3 0.1 3.0 2.6 100

1990 86.7 0.1 10.9 2.3 100

1991 85.0 0.1 12.4 2.5 100

1992 86.9 0.6 10.3 2.2 100

1993 86.0 1.9 9.7 2.4 100

1994 86.6 2.0 8.5 2.9 100

1995 89.1 1.9 6.5 2.5 100

1996 89.4 1.9 7.0 1.7 100

1997 90.6 1.5 5.2 2.7 1001998 90.1 1.0 4.2 4.7 100

1999 90.5 1.1 3.9 4.5 100

2000 91.3 0.7 2.3 5.7 100

2001 85.3 3.6 2.1 9.0 100

2002 82.8 4.1 4.7 8.4 100

2003 83.1 3.6 3.5 9.8 100

2004 89.1 1.1 1.8 8.0 100

2005 84.1 0.7 3.4 11.8 100

2006 77.5 0.7 3.1 18.7 100

Ave. 88.1 1.7 5.6 4.6 100

*1:

Notes: * Murabahah includes bay bi-thaman ajil

Sources: Calculated from BIMB Anuual Reports, 1984-2006 (Data from 1984 to 1987 aretaken from Sum, 1995: 95).


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table 2: Dubai Islamic Bank: Mode of Financing (% o toal Financing)

Year MurabahahMudarabah

+ MusharakahIjarah Ohers toal

1988 90.4 2.0 7.6 0.0 100

1989 92.4 1.9 5.7 0.0 100

1990 91.7 2.3 6.0 0.0 100

1991 92.8 1.9 5.3 0.0 100

1992 73.4 3.5 7.1 16.0 100

1993 75.9 4.9 6.3 12.9 100

1994 69.5 5.7 6.6 18.2 100

1995 60.2 5.1 8.1 26.6 100

2001 51.7 14.0 2.6 31.7 100

2002 50.4 14.6 6.6 28.4 100

2003 46.6 15.4 17.4 20.6 100

2004 48.3 15.2 23.5 13.0 100

2005 46.7 26.5 17.3 9.5 100

2006 51.9 16.9 17.4 13.8 100

Ave. 67.3 9.3 9.8 13.6 100

Sources: Calculated from DIB Anuual Reports, 1988-1995, 2001-2006 (Data from 1988 to1995 are taken from Dawaba, 2003: 22).

table 3: type of Islamic Securiies in Malaysia (% o toal Issuance)

Year Murabahah*Mudarabah

+ MusharakahIjarah Isti sna[ toal

2001 87.0 0.0 0.0 13.0 100

2002 100.0 0.0 0.0 0.0 1002003 53.5 0.0 0.0 46.5 100

2004 95.2 0.0 2.0 2.8 100

2005 69.8 12.8 2.9 14.5 100

2006 15.6 77.5 4.9 2.1 100

Note: Murbaah includes bay bi-thaman jil

Sources: Calculated from Securities Commission Annual Reports, 2000-2006.


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