TITLE

Profit-sharing investment accounts in Islamic banks: Regulatory problems and possible solutions

AUTHOR(S)
Archer, Simon; Karim, Rifaat Ahmed Abdel
PUB. DATE
September 2009
SOURCE
Journal of Banking Regulation;Sep2009, Vol. 10 Issue 4, p300
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
As interest-bearing deposits are not permitted by the rules and principles of the Islamic Shari’ah, Islamic banks typically raise deposits in the form of profit-sharing investment accounts. These accounts differ from conventional deposits not merely by virtue of the profit-sharing nature of the returns they offer, but also because the contact between the depositors and the bank is not a debt contract, and the deposits are in consequence not ‘capital certain’ (that is, the depositors are required to accept negative returns or losses). This latter characteristic leads to serious regulatory problems in jurisdictions where bank deposits are required by legal definition to be ‘capital certain’. More generally, the presence of such ‘puttable instruments’ in the capital structure of Islamic banks leads to complications in assessing their capital adequacy. In addition, the fact that the profit-sharing investment account holders are a type of equity investor without the governance rights of either creditors or shareholders raises a major problem of supervision. This article explains these problems in further detail, and proposes a solution in the form of a structural distinction between the Islamic bank in the narrow sense on the one hand, and the entity that manages the profit-sharing investment accounts on the other hand.
ACCESSION #
44115042

 

Related Articles

  • PROFIT SHARING AND PERFORMANCE IN IRISH COMPANIES: A REVIEW. D'Art, Daryl; Turner, Tom // Irish Journal of Management;2001, Vol. 22 Issue 1, p35 

    Examines trends in the use of profit sharing in Ireland. Definition of profit sharing; Comparison of employee and organizational outcomes of profit and non-profit sharing firms; Relationship between profit sharing and trade unionism.

  • Profit-Sharing.  // America;6/8/1918, Vol. 19 Issue 9, p214 

    The article reports on the investigation of the profit-sharing system in the U.S. by three manufacturers and two university professors. The investigation found that profit-sharing is a method of conciliation and good-will that should prove mutually beneficial to employer and employee. However,...

  • New Look at Profit Sharing.  // America;5/16/1964, Vol. 110 Issue 20, p667 

    The article reflects on the implications of profit sharing for workers in an industry. It mentions that a good profit sharing plan tends to give workers a taste of the incentives that make a private enterprise system superior to collectivist system. In addition, profit sharing emphasizes the...

  • And what shall it profit us? Harper, Bill // Accountancy;Sep86, Vol. 98 Issue 1117, p21 

    Discusses the pitfalls of companies profit sharing with its employees. Management role with regard to incentives for companys'employees; Relationship between incetive and good industrial relations.

  • Bonus, baby! Worth, Joe // Entrepreneur;Dec2014, Vol. 42 Issue 12, p84 

    Questions and answers are presented related to companies' creation and use of profit-sharing programs with recommendations for how often to distribute bonuses, who should benefit from profit-sharing, and the role of input in beginning the program.

  • SHARE PEACE OF MIND. Shonfield, David // Employee Benefits;Jan2006, p42 

    The article investigates whether the trend of replacing profit sharing schemes with share incentive plans (Sips) will continue in Great Britain. Profit sharing is one of the most tested incentive systems. However, many employers have begun to offer Sips, which promises financial benefits to both...

  • Grocer's bonus scheme is big carrot. Keele, Jenny // Employee Benefits;Aug2005, p09 

    Reports that co-operative firm Unicorn Grocery has launched a bonus scheme that gives all staff an equal share of profits. Features of the scheme; Transfer of the company's ethical pension scheme to the Co-operative Bank.

  • Advisor Pay: What to Watch for Next. Welsch, Andrew // Financial-planning.com;Apr2015, p1 

    Management is pushing advisors new directions, implementing more behavioral bonuses and restricting payouts on small household accounts.

  • Junk Pros Find Time to Move On. Ferguson, Joy // Investment Dealers' Digest;1/17/2005, Vol. 71 Issue 2, p9 

    The article focuses on the ongoing occupational changes and job-hopping among professionals in banking and securities industry. As soon as bonuses were handed out, Goldman Sachs lost some of its junk professionals. JP Morgan, meanwhile, has let go of a couple ahead of bonus day. One reason...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics