Are the Asymmetric Risks Upstream in Islamic Banks an Obstacle to the Principle of Money as a Relay to Capital?

Abstract

Banks in developing countries are too much liquidity, result of the poor sectoral allocation of resources, caused by their inefficiency in the production of information and in the management of risk. The economies of developing countries are, also, in a context of financial repression where the rates are capped at low levels paying evil savings and do not favor the formation of capital. The great importance of liquidity at the strict sense M1 in the monetary mass (80% according to Goldsmith, 1969) in the economies of developing countries and the lack of substitutability between physical capital and financial capital established by McKinnon (1973) brings him to advocate for these economies the principle of money as a relay to capital. The alternative posed by Islamic banks, effective in the production of information (Alim B., 2011) and in the risk management (Khan M., 1986; Alim B., 2011) favorable to a better sectoral policy, faced to a peculiar asymmetric risk upstream of the financing operation. The purpose of the study is to show that this risk, mainly financial, has such effect to reduce or even eliminate the utility of depositors and may constitute a barrier to the principle of money as a relay to capital. If Islamic banking is recommendable because adapted to the financing of emerging economies, it should be defined for this system the management mechanisms of this type of risk with evident impact.