Financing Alternatives

The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.Question:: Are there any alternatives that can be used today by compaines, when they need to borrow money to fund project other than from (interest bearing means) i.e. the banks and the capital markets? Answer: Alternatives certainly exist. When companies need influxes of liquidity, they generally resort to one of two options: they seek loans, or they issue bonds or more stock. Obviously, the option that is free of riba is the issuing of stock. Even so, many corporations are hesitant to do this because it dilutes, or lessens, the value of stock already owned by its shareholders. With proper planning, however, a company can stockpile reserves for reinvestment, and thus address the problem in that manner. If you are shareholder in a company that is borrowing on interest (either from banks or through the issue of bonds), you should communicate your concern to management. If the borrowing exceeds one third of the company's assets, you should liquidate your position. And Allah knows best.

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