POLEMIC OF DEBT-BASED VIS -EQUITY-BASED TRANSACTIONS

Abstract

Islamic finance offers an alternative to society through the Islamic banking system, takaful (Islamic insurance), and capital market goods and services. The explosive growth of Islamic banking products has experienced double-digit annual growth since its inception. Islamic Financial Institutions (IFIs) are being pushed to create new products to meet the ever- changing needs of their existing and potential customers as a result of the rising popularity of Islamic banking. However, Islamic banking products still face challenges in Islamic banking institutions across the world. Therefore, the purpose of this study is to examine the Polemic of Debt-based vis-s-vis Equity-based transactions. The methodology that has been utilized in this study is the literature review. This paper aims to highlight Islamic finance methods, particularly debt and equity-based financing discussed the present challenges surrounding debt and equity- based financing. The finding suggests the main factors which hinder the application of musharakah and mudarabah by Islamic finance products, namely high risk, asymmetric information, capital guarantee, lack of awareness, and lack of knowledge of the equity-based products and issues related to debt-based transactions. Finally, this study recommends that Islamic financial institutions, banks, and regulators should fully implement equity-based contracts.