Esham may replace sukuk for Islamic finance

In conjunction with the recently-held Global Islamic Finance Forum (GIFF) 2014 INCEIF discussed esham as a shari'ah-compliant concept for modern Islamic finance. Esham was first introduced in the 18th century by the Ottoman government. It yielded fixed income to its investors, but also conforms to shari'ah law. 

INCEIF Professor of Comparative Economics History Professor Dr Murat Cizakca, an expert on the Ottoman economy, said esham could be an ideal saving instrument for the middle class in the Islamic world. 

Source: INCEIF. Following his presentation, Prof Murat Cizakca (lef) was joined by ISRA Executive Director Prof Dr Mohamad Akram Laldin (right) and First Holder INCEIF Chair of Islamic Finance Prof Dr Abbas Mirakhor (centre) in a panel discussion on esham from the shari'ah and commercial aspects.

Professor Cizakca presented a paper on the topic at the 11th IFSB Summit in Mauritius in May. In the paper he noted that any innovation is subject to at least three criteria. Besides avoiding riba (usury), it must not be an instrument of risk shifting but one of risk sharing. Thirdly, it must be capable of moving the society towards the Al-Ghazali/al-Shatibi optimum*.

INCEIF has also noted in an opinion that esham complies with Basel III, and could eventually replace sukuk.

The biannual GIFF 2014, entering its fourth year, was held from 2 to 4 September in Kuala Lumpur, Malaysia.

*For this concept Çizakça refers to Islamic Capitalism and Finance: Origins, Evolution and the Future (Cheltenhem: Edward Elgar, 2011), pp. 276-281.