The Benchmark Issue in the Islamic Financial System

This paper identifies a major lacuna in the conceptual development of Islamic financial market operations. It argues that in the absence of a well developed benchmark that would facilitate macro- and micro-level decision making with regards to cost of capital and opportunity cost of investments in...

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Auteur principal:	Zamir Iqbal
Format:	article
Langue:	EN
Publié:	International Institute of Islamic Thought 1999
Sujets:	Islam BP1-253
Accès en ligne:	https://doaj.org/article/20e5bfe08f6444b8b9ddc2f6c9b3faca
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spelling	oai:doaj.org-article:20e5bfe08f6444b8b9ddc2f6c9b3faca2021-12-02T19:22:41ZThe Benchmark Issue in the Islamic Financial System10.35632/ajis.v16i2.21282690-37332690-3741https://doaj.org/article/20e5bfe08f6444b8b9ddc2f6c9b3faca1999-07-01T00:00:00Zhttps://www.ajis.org/index.php/ajiss/article/view/2128https://doaj.org/toc/2690-3733https://doaj.org/toc/2690-3741 This paper identifies a major lacuna in the conceptual development of Islamic financial market operations. It argues that in the absence of a well developed benchmark that would facilitate macro- and micro-level decision making with regards to cost of capital and opportunity cost of investments in comparative projects of similar risk, Islamic financial institutions are relying on interest rate-based indices such as the London Inter-Bank Offer Rate (LIBOR) to make lending decisions. The author contends that this is clearly unacceptable since Islam disallows a predetermined or fixed rate of capital. The paper then proposes a benchmark based on Tobin’s q theory of investment. The author further maintains that unlike existing alternatives which are limited to macro-level applications only, the q-based benchmark would be useful for firms and banks (micro-decisions) as well as governments and institutions (macro-planning). Zamir IqbalInternational Institute of Islamic ThoughtarticleIslamBP1-253ENAmerican Journal of Islam and Society, Vol 16, Iss 2 (1999)
institution	DOAJ
collection	DOAJ
language	EN
topic	Islam BP1-253
spellingShingle	Islam BP1-253 Zamir Iqbal The Benchmark Issue in the Islamic Financial System
description	This paper identifies a major lacuna in the conceptual development of Islamic financial market operations. It argues that in the absence of a well developed benchmark that would facilitate macro- and micro-level decision making with regards to cost of capital and opportunity cost of investments in comparative projects of similar risk, Islamic financial institutions are relying on interest rate-based indices such as the London Inter-Bank Offer Rate (LIBOR) to make lending decisions. The author contends that this is clearly unacceptable since Islam disallows a predetermined or fixed rate of capital. The paper then proposes a benchmark based on Tobin’s q theory of investment. The author further maintains that unlike existing alternatives which are limited to macro-level applications only, the q-based benchmark would be useful for firms and banks (micro-decisions) as well as governments and institutions (macro-planning).
format	article
author	Zamir Iqbal
author_facet	Zamir Iqbal
author_sort	Zamir Iqbal
title	The Benchmark Issue in the Islamic Financial System
title_short	The Benchmark Issue in the Islamic Financial System
title_full	The Benchmark Issue in the Islamic Financial System
title_fullStr	The Benchmark Issue in the Islamic Financial System
title_full_unstemmed	The Benchmark Issue in the Islamic Financial System
title_sort	benchmark issue in the islamic financial system
publisher	International Institute of Islamic Thought
publishDate	1999
url	https://doaj.org/article/20e5bfe08f6444b8b9ddc2f6c9b3faca
work_keys_str_mv	AT zamiriqbal thebenchmarkissueintheislamicfinancialsystem AT zamiriqbal benchmarkissueintheislamicfinancialsystem
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The Benchmark Issue in the Islamic Financial System

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