IslamicFinance.de

For countries wanting to enable Islamic finance within their borders, a key requirement is tax legislation to provide for tax neutrality. Without a waiver, Islamic finance would incur costs that would render it prohibitive. While the debt like contracts of Islamic finance, contracts such as Ijarah, Murabaha, Bai Bithamin Ajil (BBA), Salam and the like dominate Islamic finance, the risk sharing contracts like Mudarabah and Musyarakah remain unused. Yet, it is the risk sharing contracts that truly provide the value added of Islamic finance. Removing the tax impediment to risk sharing contracts can help rejuvenate both Islamic banking and capital markets. The biggest advantage to the movement away from debt to risk sharing at the micro level is the macro level benefit of reduced vulnerability.