Diversification of Islamic Financial Instruments
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orientation from a ‘financer-intermediator-entrepreneur’ towards a ‘financer-entrepreneur’
model. The ensued global focus on P2P lending, crowd funding, angel investing, mobile
banking and other similar modes of financing is a proof. These not only have created better
opportunities for financial inclusion but have tended to improve the overall social fabric via
improved trusteeship and risk sharing. The same focus is recommend for Oman, particular in
view of tanfeedh, the AlRafdh and Ethmar funds for SMEs and venture capital.
What is crucially noteworthy is the fact that the fintech driven, new age, finance is in complete
actuality, application of basic Islamic Finance i.e. reliance on risk sharing based Mudaraba and
Musharaka financing. In a typical risk sharing arrangement such as equity finance, parties
share the risk as well as the rewards of a contract. Assets are invested in remunerative trade
and production activities. The return to assets are not known at the instant assets are invested,
akin to Arrow-Debreu securities. Oman’s welcome adoption of Islamic finance has created a
valuable opportunity to help meet its economic diversification needs by resorting and
branding itself as a ‘New Age Islamic Fintech Finance; that is oriented towards
entrepreneurship and financial inclusion, research and innovation. The recent new age Waqf
Forum (2017) in Oman and other similar preliminary initiatives via CBFS are steps in right
direction. Moreover, initiative (WIFE, 2016), of amalgamating waqf with crowd funding via
Fintech (see ) is another insight for Tanfeed initiatives.
Moreover, to complement the achievement and pursuant sustainability of the above,
innovative approaches to promote Islamic capital markets and other important areas are
investment banking, stock markets, trade and crops financing, and the payments system. The
promotion of stock markets can play an important role in Islamic finance103. This is so since in
an Islamic system version 2.0, investment banks would not provide loans but would
participate as shareholders. Depositors in these banks would own marketable equity shares
that could be traded on the stock market according to market prices. Since depositors are
generally risk-averse, they would invest only in shares that provide the risk-return profile they
would seek. This will in turn lead banks to select the most profitable projects. Thus, financial
resources would not receive their true opportunity cost where the surplus fund holder nor the
entrepreneur would be exploited, complying with the Verse 275 Chapter 2 of the Qur’an (See,
for example, Mirakhor and Shaukat, 2015 and Shaukat 2015/16).
Shaukat, (2016) suggest that, for example, oil revenue dried GCC countries like Oman and even
debt ridden Eurozone countries can finance its capital spending through equity participation in
the form of public-private partnership. One of the most promising instruments that would
allow governments to improve risk sharing is the category of instruments called
‘macromarket’ securities that can allow people to mitigate risks to their income and countries
to enhance international risk sharing 104. Governments can easily tap the equity premiums: that
is the excessive return on equity and equity instruments versus the returns on risk free assets
such as government bonds. For example, a Eurozone country can finance its capital spending
103 As has been argued in Shaukat and Alhabshi (2015), the interest-based credit system has considerably reduced the
efficiency of these markets as it provides credit for speculation and creates abundant liquidity which distorts the returns on
equities and results in price crashes. Returns become more related to speculation and share prices appreciation and only
weakly related to the fundamentals of the company.
104 This type of risk sharing instruments has been proposed by analysts for some time now. Shiller (2003), the first to
suggest this type of “macromarket” instruments, believes that the benefits of risk sharing are substantial but have yet
materialized due to the limited availability of appropriate instruments.