Syllabus B. Advanced Investment Appraisal B3. Impact of financing on investment decisions and APV

B3b. Basic Idea - IF 7 / 18

Syllabus B3b)

Discuss the role of, and developments in, Islamic financing as a growing source of finance for organisations; explaining the rationale for its use, and identifying its benefits and deficiencies.

Islamic finance has obvious religious reasons for use but also commercially

Commercial Reasons for using Islamic Finance

  • May be available when other sources of finance aren't

  • More conservative and less risky

Islamic finance does not allow "interest" instead returns come from the risks of ownership

So the Islamic bank faces similar risks to its client and so is more involved in the investment decision making