A new generation of non-debt fixed-income finance

Abstract

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.

Citation

A. Graff, R. (2013), "A new generation of non-debt fixed-income finance", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 6 No. 4, pp. 267-277. https://doi.org/10.1108/IMEFM-05-2013-0062