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The majority of economic crises impact the wealth of people which in turn affect their financial capacity to purchase residential properties. However, the home financing method may also have an impact on the behaviour of house prices. This chapter intends to test argued resilience of Islamic finance to situations of financial crisis by using an Islamic home financing product called Enhanced Musharakah Mutanaqisah (EMM) which was proposed by Asadov and Ibrahim (2018) as an example and compare its performance to conventional mortgage. Two different models of home financing, conventional and EMM based ones are developed with the former reflecting basic features of conventional mortgage and the latter using rental rates and house price indices for product pricing. Both models are compared using aggregate data for the US housing market for the past 30 years in order to demonstrate the resilience of the EMM model. The findings of the study show that EMM is more flexible in terms of reflecting real situations in both the housing market and aggregate economy as compared to the conventional model. Its pricing is more accommodating particularly during times of economic downturns, and it can potentially provide the solution to numerous mortgage defaults arising from such conditions. Despite the proposed models being tested using data only from the United States, the analysis can be generalized for other countries as well. The implementation of the EMM model, as an example of Shariah-based Islamic financial product, is expected to bring fairness and justice in the relationship between financial institutions and its clients. To the best of our knowledge, this is the first attempt of simulating a Musharakah Mutanaqisah based home financing using both actual rental rates and house prices for product pricing.

This paper aims to explore the structure and underlying contracts of Islamic venture capital (IVC) and to evaluate its prospects. VC can be perceived as an investment vehicle possessing most of the desirable attributes of a Sharīʿah-compliant investment vehicle. There are certain issues involved in the formation, operations and exit strategies of these investments that are discussed in detail in this paper.

A detailed review of relevant literature is performed to identify how IVC investments can be made and how related issues may be resolved.

IVC investment has potential of incorporating Sharīʿah-compliant investment modes. Additionally, it may offer higher than average returns. These attributes can be desirable for Islamic finance industry that is currently in need of equity-based financing products. The major causes of lesser growth of IVC investments are lack of awareness among the investors and the absence of viable investment opportunities for small- and medium-scale investors. IVC may attract general public if established after extensive research aimed at introducing innovative products.

This paper provides an overview of a truly Sharīʿah-compliant investment vehicle, furnishes a synthesis of various suggestions made by industry and academia and suggests viable solutions for valuation, risk management and exit strategies.

This paper aims to examine the practical issues in the Musharakah Mutanaqisah (MM) financing and subsequently, recommends possible solutions to mitigate these issues and improve the current practice.

This paper analyses the theory and current practices of MM offered by Islamic banks.

It is suggested that Islamic financial institutions consider revaluation of property’s value to its fair value, especially during termination of MM contract and annual or agreed periodic review of the market value of the assets to determine the “rental” payments by the customer. It is also recommended that Islamic financial institutions should share all associated costs in performing the contract.

Research findings reported in this paper contribute to the body of knowledge on MM in general and to the Islamic finance practices in Malaysia and abroad. Indeed, the Malaysia Central Bank (i.e. Bank Negara Malaysia) should form a special committee to look into the issues highlighted in this paper and recommend strict guidelines for Islamic financial institutions to improve their practices.

Islamic banks should extend the use of MM contract in automobile and trade financing where rent or profit could be easily identified and value of the asset is more certain. The regulators and Islamic financial standard setting authorities need to oversee the Shari’ah board decisions on MM contracts and keep the gates in the interest of ensuring a more viable and authentic Islamic finance industry.

This paper briefly views the current mode of MM contracts, specifically for home financing, and highlights the incompliance to Shari’ah requirements in exercising these contracts in practice.

Despite its potential as an emerging market for Islamic financial services, Uzbekistan has lagged in legislative support. This study aims to evaluate the feasibility of introducing an Islamic capital market (ICM) in Uzbekistan, preceding a broader industry establishment.

The authors begin by assessing Islamic finance literacy and the potential demand for ICMs in Uzbekistan. The authors then scrutinize Uzbekistan’s capital market legislation and its readiness. This analysis uses primary data, including surveys and interviews, and secondary data from literature and financial legislation.

This study highlights a significant demand for ICMs, despite low Islamic finance awareness in Uzbekistan. Presently, Uzbekistan’s capital market development is lacking, with regulations not yet suitable for ICMs. As a result, legal and operational enhancements are needed.

The authors provide essential policy recommendations for authorities and practitioners to facilitate the effective launch of ICMs and enhance Uzbekistan’s capital market stature.

To the best of the authors’ knowledge, this is the first study offering an in-depth analysis of the potential and feasibility of ICMs in Uzbekistan.

This study aims to critically analyze the fundamentals of the current major Islamic Finance (IF) instruments and contracts in light of both the foundations of IF and the concept of substance over form in the accounting conceptual framework. Such analysis is believed to be necessarily for the IF institutions to provide better and more genuine service to their customers.

To achieve the study purpose, the methodology is based on theoretical analysis and analytical review of the major IF contracts.

The IF industry needs to focus on the economic substance of the products offered to their clients. In developing and promoting their products, IF institutions need to focus on the ultimate and substantial goals of Islamic Sharia rather than re-packaging existing conventional products under different arrangements and formats to make them appear as Sharia-compliant to their clients. Both religious scholars and IF professionals need to engage in much deeper analysis and understanding of the substantial design of IF instruments and the concept of usury in modern economy.

This paper does not intend to develop a comprehensive framework for the design of IF instruments to meet the economic substance and ultimate goals of IF principles or measure such economic substance. However, that is definitely a subject for further research.

By applying concepts like substance over form from other business fields such as the accounting theoretical framework to the IF instruments and contracts, we should gain better understanding and practical implications of these instruments and figure out ways to improve their design to be more consistent with and better serve the ultimate goals of the Islamic Sharia.

The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles.

The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios.

Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties.

Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives.

This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.

This paper aims to determine the effect of equity financing on bank stability during normal and crisis periods.

This study uses a static panel regression that includes pooled ordinary least square, random effect and fixed effect model to examine the influence of equity financing on bank stability. In estimating bank stability during a financial crisis, the authors predict the occurrence of a crisis using the early warning system (EWS). The authors then used z-score to measure Islamic banks’ stability.

Islamic banks that offer equity financing structure are more stable compared to Islamic banks without such structure. Islamic banks with medium equity financing have highest stability relative to Islamic banks with high or low equity financing. During crises, the Islamic banks with equity financing structure remain relatively stable compared to other Islamic banks.

The sampling coverage could have included a larger number of countries and banks.

The authorities need to strengthen the banking framework to support the Islamic financial products by encouraging a wider use of risk-sharing instruments. Besides using a debt-like financing structure, Islamic banks should also place emphasis on equity financing in instilling the banking sector stability. In monitoring banks with equity financing, the authorities may need to look into the level of equity financing.

Besides avoiding riba and gharar in financing, equity financing encourages cooperation and participation among society as they share the risks.

This paper analyses the effect of equity financing on the Islamic banks stability during normal and crisis periods. This paper further examines the intensity of the equity financing and its influence on bank stability.