Risk sharing and risk shifting
April 06, 2016 | Updated at September 27, 2017
Classical sources of Islam prohibit interest transactions but encourage business partnerships and trade. While interest transactions shift risks from the capitalist to the entrepreneur, partnerships lead the two to share them. Thus, it follows that Islam prefers risk sharing to risk shifting. [2]
Since it is the risks which generate profits and losses, it follows that when risks are shared, profits and losses are also shared. Therefore, risk sharing leads to a share economy, that's what an Islamic economy is supposed to be all about.
But all of this is theory. What about application? In all cultures economic theory is translated into application via institutions. If so, whic...