Table Of Content1
FINANCE, FINTECH, AND CROWDFUNDING IN ISLAM
Antifragility of Islamic Finance: The Risk-Sharing Alternative explains
M
how risk-sharing, as defined under Islamic finance, makes financial
I
systems antifragile. It highlights the benefits of 100% equity-based RR
finance over debt-based finance. AA
The recent financial crisis has given rise to discussions on a new KF
approach to risk management called antifragility. This concept spec- HI &
O
ifies conditions under which systems become resilient to shocks
R
caused by Black Swans—highly unpredictable outlier events that have
a major negative (or positive) consequence when they occur, with
their occurrence only explained retrospectively. Per this concept, the
long-term survivability of any system centers exclusively on its anti- A
fragile nature, that is, its ability to absorb and even benefit from Black Antifragility
Swan–type shocks. This book aims to investigate risk-sharing Islamic n
finance as an antifragile system. t
As a by-product of the Great Recession, the problems of debt- i
based financial systems are starting to be highlighted by industry f
r
and by academia. The antifragile solution for avoiding future financial
a
crises is primarily centered on moving the existing financial system
towards more equity and less debt, thereby introducing skin-in-the- g
game into financial transactions. This book introduces a model of a i of Islamic
100% equity-based financial system, centered on risk sharing, as a l
i
possible alternative to the contemporary debt-based, conventional
t
financial system, which is based on risk transfer and on risk shifting. In y
essence, this book attempts to provide a practical model for an anti-
fragile financial system by evaluating the characteristics of Islamic o
finance under the criteria of antifragility.
f
I Finance
Umar Rafi specializes in the field of information technology in the s
financial services domain. He is currently working as a computer sci- l
a
entist in Silicon Valley. He has a BS in mathematics from the United
States Air Force Academy, an MS in computer science from Wichita m
State University, and a PhD in Islamic finance from the International
Centre for Education in Islamic Finance (INCEIF). i
c
Abbas Mirakhor joined INCEIF in 2010 as Distinguished Scholar and
F
the first holder of INCEIF’s chair in Islamic finance. His research inter-
ests include conventional and Islamic economics and finance. Prior i
n
to joining INCEIF, he spent 24 years with the International Monetary
Fund, serving as executive director and dean of the executive board. a
He is a graduate of Kansas State University, where he received his n
Bachelor, Master, and PhD degrees in Economics. The Risk-Sharing Alternative
c
e
www.peterlang.com
P
E
T
E
R
L
A
N
G
FINANCE, FINTECH, AND
UMAR RAFI ABBAS MIRAKHOR
CROWDFUNDING and
IN ISLAM
1
FINANCE, FINTECH, AND CROWDFUNDING IN ISLAM
Antifragility of Islamic Finance: The Risk-Sharing Alternative explains
M
how risk-sharing, as defined under Islamic finance, makes financial
I
systems antifragile. It highlights the benefits of 100% equity-based RR
finance over debt-based finance. AA
The recent financial crisis has given rise to discussions on a new KF
approach to risk management called antifragility. This concept spec- HI &
O
ifies conditions under which systems become resilient to shocks
R
caused by Black Swans—highly unpredictable outlier events that have
a major negative (or positive) consequence when they occur, with
their occurrence only explained retrospectively. Per this concept, the
long-term survivability of any system centers exclusively on its anti- A
fragile nature, that is, its ability to absorb and even benefit from Black Antifragility
Swan–type shocks. This book aims to investigate risk-sharing Islamic n
finance as an antifragile system. t
As a by-product of the Great Recession, the problems of debt- i
based financial systems are starting to be highlighted by industry f
r
and by academia. The antifragile solution for avoiding future financial
a
crises is primarily centered on moving the existing financial system
towards more equity and less debt, thereby introducing skin-in-the- g
game into financial transactions. This book introduces a model of a i of Islamic
100% equity-based financial system, centered on risk sharing, as a l
i
possible alternative to the contemporary debt-based, conventional
t
financial system, which is based on risk transfer and on risk shifting. In y
essence, this book attempts to provide a practical model for an anti-
fragile financial system by evaluating the characteristics of Islamic o
finance under the criteria of antifragility.
f
I Finance
Umar Rafi specializes in the field of information technology in the s
financial services domain. He is currently working as a computer sci- l
a
entist in Silicon Valley. He has a BS in mathematics from the United
States Air Force Academy, an MS in computer science from Wichita m
State University, and a PhD in Islamic finance from the International
Centre for Education in Islamic Finance (INCEIF). i
c
Abbas Mirakhor joined INCEIF in 2010 as Distinguished Scholar and
F
the first holder of INCEIF’s chair in Islamic finance. His research inter-
ests include conventional and Islamic economics and finance. Prior i
n
to joining INCEIF, he spent 24 years with the International Monetary
Fund, serving as executive director and dean of the executive board. a
He is a graduate of Kansas State University, where he received his n
Bachelor, Master, and PhD degrees in Economics. The Risk-Sharing Alternative
c
e
www.peterlang.com
P
E
T
E
R
L
A
N
G
FINANCE, FINTECH, AND
UMAR RAFI ABBAS MIRAKHOR
CROWDFUNDING and
IN ISLAM
ADVANCE PRAISE FOR
Antifragility of Islamic Finance
“Ten years after the 2007 global financial crisis and 20 years after the Asian financial crisis, you
would have thought that mainstream economics would have been discredited for its failure to
predict and offer credible solutions for radical uncertainty and fragile financial systems. Umar
Rafi and Abbas Mirakhor’s book Antifragility of Islamic Finance: The Risk-Sharing Alternative
offers a rare and revolutionary position that the equity and risk-sharing nature of Islamic
finance is more robust, resilient, and antifragile than conventional debt finance, which has
become concentrated, fragile, and unmanageable. The authors succinctly map the original work
of Mandelbrot, Nassim Taleb, and Kahneman into the basic philosophy of Islamic finance. I
commend this book as a fundamental building block for the foundations of Islamic finance as
mainstream finance.”
—Tan Sri Andrew Sheng, distinguished fellow at the Asia Global Institute, University
of Hong Kong, and chief advisor to the China Banking Regulatory Commission.
“This is a must-read book for practitioners and policy makers contemplating a truly sound
business model for Islamic finance. The book articulates well the superiority of risk-sharing
based finance in comparison to debt-based finance by cleverly drawing the parallels of risk-
sharing and antifragility (a new concept introduced by Nassim Nicholas Taleb). Its arrival is
indeed timely to alleviate any remaining scepticism on the viability of risk-sharing finance as
the model for the next generation of Islamic finance. Readers will appreciate the insightful
analysis on the gaps of presently used statistical modelling, which if treated as a ‘black box’
could adversely influence financial and policy decision-making.”
—Siti Muawanah Lajis, Islamic Banking and
Takaful Department, Bank Negara Malaysia
“The recent Great Recession has revealed a dramatic lack of resiliency of the current economic
and financial system. Umar Rafi and Abbas Mirakhor have carried out an excellent in-depth
analysis of the quantitative and qualitative underlying factors leading to the Great Recession,
concluding with a deep insight on why and how to prevent and/or prepare for another one.
They offer a unique transformational solution based on the disruptive concept of antifragility,
which is gaining wide attention in the economic and financial community. This is a must-read
book for anyone interested in evaluating and constructing an alternate financial and economic
system, based on 100% equity that will offer more resiliency, to the current debt-based financial
system that is extremely fragile.”
—Ken Tachibana, managing principal, Intelligence Capital
Antifragility of Islamic Finance
FINANCE, FINTECH, AND
CROWDFUNDING
IN ISLAM
Hossein Askari and Dariush Zahedi
Series Editors
Vol. 1
The Finance, FinTech, and Crowdfunding in Islam series
is part of the Peter Lang Politics and Economics list.
Every volume is peer reviewed and meets
the highest quality standards for content and production.
PETER LANG
New York Bern Frankfurt Berlin
Brussels Vienna Oxford Warsaw
Umar Rafi and Abbas Mirakhor
Antifragility of Islamic Finance
The Risk-Sharing Alternative
PETER LANG
New York Bern Frankfurt Berlin
Brussels Vienna Oxford Warsaw
Library of Congress Cataloging-in-Publication Data
Names: Rafi, Umar, author. | Mirakhor, Abbas, author.
Title: Antifragility of Islamic finance: the risk-sharing alternative /
Umar Rafi and Abbas Mirakhor.
Description: New York: Peter Lang, 2018.
Series: Finance, fintech and crowdfunding in Islam; vol. 1
ISSN 2572-7435 (print) | ISSN 2572-7443 (online)
Includes bibliographical references and index.
Identifiers: LCCN 2017023482 | ISBN 978-1-4331-4350-2 (hardcover: alk. paper)
ISBN 978-1-4331-4347-2 (ebook pdf) | ISBN 978-1-4331-4348-9 (epub)
ISBN 978-1-4331-4349-6 (mobi)
Subjects: LCSH: Finance—Islamic countries. | Finance—Religious aspects—Islam.
Finance (Islamic law) | Risk management.
Classification: LCC HG187.4 .R34 2018 | DDC 332.0917/67—dc23
LC record available at https://lccn.loc.gov/2017023482
DOI 10.3726/b11155
Bibliographic information published by Die Deutsche Nationalbibliothek.
Die Deutsche Nationalbibliothek lists this publication in the “Deutsche
Nationalbibliografie”; detailed bibliographic data are available
on the Internet at http://dnb.d-nb.de/.
© 2018 Peter Lang Publishing, Inc., New York
29 Broadway, 18th floor, New York, NY 10006
www.peterlang.com
All rights reserved.
Reprint or reproduction, even partially, in all forms such as microfilm,
xerography, microfiche, microcard, and offset strictly prohibited.
To
Muhammad Iqbal (Lahori)
