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Article

Open Access

Theory of Risk in Conventional Public Finance and Islamic Finance

Author(s)

Hanna Kociemska

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DOI:10.17265/2328-7144/2017.06.010

Affiliation(s)

University of Economics, Wroclaw, Poland

ABSTRACT

The research objective of the article is to extend the theoretical basis of risk management in the public and Islamic finance. The author hypothesizes that the existing theories of finance, the public choice theory, and the concept of New Public Management create insufficient conditions for risk management in the public finance sector entities and associated international structures of public-private partnership. As shown by the experience of recent years, the theory of financial markets as regards its operators has not yet developed a widely accepted model of risk management. In addition, the public choice theory and the concept of New Public Management do not fully illustrate the essence of risk management in the public sector, especially in capital structures where a private entity (Islamic investor) partners a public one. In Islamic finance, Sharia complaint instruments cannot be based on gharar, which is usually translated as risk, deception, delusion, and excessive uncertainty. The research methods mostly used in the article are analysis and critique of scientific literature with respect to risk of operation of public entities and risk in Islamic finance as well as public-private partnerships. The basic conclusion is that the adopted interpretations of risk in selected theories of conventional finance and the foundations of Islamic economy indicate that joint projects related to infrastructure are feasible.

KEYWORDS

risk, Islamic finance, public finance theory, public private partnership, finance theory

Cite this paper

Economics World, Nov.-Dec. 2017, Vol. 5, No. 6, 584-594 doi: 10.17265/2328-7144/2017.06.010

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