A new generation of non-debt fixed-income finance

• Published in: International journal of Islamic and Middle Eastern finance and management Vol. 6; no. 4; pp. 267 - 277
• Main Author: Graff, Richard A
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Group Publishing Limited 01.01.2013
• Subjects: Accounting & Finance; Alcoholic beverages; Capital market; Capital structure; Civil law; Commercial real estate; Debt; Developed countries; Equity capital; Financial crisis; Financial management/structure; Financial services; Islamic financing; Personal property; Property rights; Real estate; Remainder interests; Restrictions; Securities markets; Securitization; Studies; U.S.A; United States > US; Islamic finance; Ownership interest; All-equity; Lease-based; Property rights; Capital structure
• ISSN: 1753-8394; 1753-8408
• DOI: 10.1108/IMEFM-05-2013-0062

Purpose – The development of standardized fixed-income securities and organized secondary markets in which to price and trade the securities is a widely recognized factor in the emergence of modern developed economies. However, the ongoing global financial crisis has exposed the existence of a fundamental and costly conflict between lender and borrower property rights when debt is securitized that has imperiled some fixed-income markets in their present form. This paper aims to suggest a new non-debt concept for fixed-income finance that avoids the conflict inherent in securitized debt. Design/methodology/approach – The paper considers how to build the foundation of non-debt fixed-income technology on property law instead of contract law. Findings – Fixed-income products based on the new technology expose investors to lower loss risk than investors incur with analogous debt-based products. Such products could lower the cost of fixed-income finance and contribute to the global restoration of fixed-income market liquidity. Research limitations/implications – Variations in property law across venues imply that the new financial technology is not implementable in all legal systems. Originality/value – The new financial technology could represent an opportunity for the Islamic financial industry to expand its fixed-income horizons in the global financial markets. The upside both within and beyond the Islamic community could be dramatic.