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Jhordy Kashoogie, graduated from International Islamic University Malaysia (IIUM) with a B. Econs.(Hons) in Islamic Economics and Finance qualification, he is currently undertaking his postgraduate study, MSc Islamic Finance, at Durham University, United Kingdom.  Ezry Fahmy, graduated from International Islamic University Malaysia (IIUM) with a B. Econs.(Hons) in Islamic Economics and Finance qualification, currently he is pursuing Charted Islamic Finance Profesional (CIFP) program at the International Centre for Education in Islamic Finance (INCEIF). He has written various articles on Islamic Banking and Shariah issues.  Asim Anwar Kamal, graduated from International Islamic University Malaysia (IIUM) with a B. Econs.(Hons) in Islamic Economics and Finance qualification with a first-class degree, currently he is pursuing Charted Islamic Finance Profesional (CIFP) program at the International Centre for Education in Islamic Finance (INCEIF).  Together, they recently published their paper on "Debt versus Equity Financing in the Light of Maqasid al-Shari'ah" (see reference link).

We started working on this research paper (see reference link) as part of the requirement to complete our Bank Management course during our undergraduate studies, but what brought us together was the keen desire shared by all of us to explore the development of Islamic banking and finance (more than to have a publishable research paper).  One of the key lessons from the course was in terms of developing a relevant topic, brainstorm the arguments, setting problem statements, stating the objective of the study, and performing the actual research questions.  Developing this entire process at the outset was critical for us to succeed, and from here we had a much easier task of analyzing the data and constructing the final paper.

This discursive research paper departs from our concern regarding the current development of Islamic banking & finance in which there is a divergence of direction of the current Islamic finance practices from the initial ideals/visions enshrined in the objective (Maqasid) of Shari'a.  Specifically, we scrutinize how debt-based financing has proliferated through a legal ruse (hiyal) with a fancy Arabic name, rather than promotion of equity financing, which is genuinely in line with Maqasid Al-Shari'a.  Therefore, our paper scrutinises the danger of debt-financing and exposes the importance of equity financing for Islamic finance in light of Maqasid Al-Shari'a coupled with equity financing's misgivings. The extensive elaboration of the arguments for this paper includes a wide survey of academic literature and authored material by Islamic economists and Shari'a scholars.

Before discussing the key points of the paper, it is pertinent to discuss obstacles faced by building up this research. One of the main obstacles we faced was on finding the relevant reference papers, which analyses the industry's reluctance to use equity financing.  Until recently, the literature regarding equity financing are mainly focused on theoretical debates as well as idealistic arguments among the scholars without taking into the account the'voice' of the key players in the industry.  Consequently, our paper has relied mostly on theoretical (and to an extent idealistic) references. Due to this reason, there is a clear urgent need for further research to be undertaken with regards to field work, industry research, practitioner interviews, etc.  

In that sense, such additional resources would allow us to examine the reasons why there is a lack of implementation of equity financing and what kind of incentives can be developed for industry players to design (and implement) such products.  Thereafter, the findings of that field work could then be used as valuable feedback for scholars and practitioners to develop their arguments in a more holistic fashion.  In this regard we believe there is a close alignment between academia and practitioners to promote equity financing in the industry.

This paper suggests that proliferation of debt-financing with conventional finance ingredients would further deprive the"unbankable" consumers to access financing at the micro level, and threaten the long-run existence of Islamic financial institutions from any forthcoming negative shocks, if Islamic finance remains using debt financing.  However, there are no incentives as of yet for Islamic banks to recourse to equity financing - in fact one can argue that there are high costs and significant risks involved.  Since there is deep deliberation of scholars' arguments that equity financing must be practiced in lieu of debt financing, whilst the current financial system does not support the equity financing implementation, we feel that there should be another form of institutions that could facilitate the implementation of equity financing (i.e. in the form of cooperatives for example).

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