Risk Sharing as an Alternative to Debt 101
of the Creator. All actions are risky because the full spectrum of future con-
sequences of action is known to no one but Allah (swt).
ISLAM’S PERSPECTIVE ON RISK SHARING
It follows from the above discussion that it would be diffi cult to imagine the
idea of testing without uncertainty and risk. Statistician David Bartholemu
(2008: 230) asserts that: “It could be plausibly argued that risk is a neces-
sary ingredient for full human development. It provides the richness and
diversity of experience necessary to develop our skills and personalities.” He
speculates that: “The development of human freedom requires that there be
suffi cient space for that freedom to be exercised. Chance seems to provide
just the fl exibility required and therefore to be a precondition of free will.”
(2008: 200) Further, he suggests (pp. 239–40) that:
[W]e value our free will above almost everything; our human dig-
nity depends upon it and it is that which sets us apart from the rest
of the creation. But if we are all individuals free, then so is everyone
else, and that means the risks created by their behavior, foolish or
otherwise, are unavoidable. To forgo risk is to forgo freedom; risk
is the price we pay for freedom.Muslims believe that life and freedom are gifts of the Supreme Creator, and
uncertainty and risk are there to test and try man to facilitate his growth and
development. People are not left unaided to face the uncertainty of life and suf-
fer its consequences. Prophets and messengers have brought guidance on how
best to make decisions and take actions to mitigate the risks of this life and to
improve the chances of a felicitous everlasting life. Islam, in particular, has pro-
vided the ways and means by which the uncertainties of life can be mitigated.
First, it has provided rules of behavior and a taxonomy of decisions —
actions and their commensurate payoffs. Complying with these rules
reduces uncertainty. Clearly, individuals exercise their freedom in choos-
ing to comply or not. That rules of behavior and compliance with them
reduce uncertainty is an important insight of the new institutional eco-
nomics. Rules reduce the burden on cognitive capacity, particularly in the
decision - making process under uncertainty. Rules also promote cooperation
and coordination (Mirakhor 2009). Second, Islam has provided ways and
means by which those who are able mitigate uncertainty by sharing the risks
they face by engaging in economic activities through exchange with others.
Sharing allows risk to be spread and thus lowered for individual partici-
pants. However, if poverty prevents a person from using any of the means
of risk sharing, Islam requires the rich to share the risks of the poor by
redeeming their rights derived from the Islamic principles of property rights.
Individuals face two types of risks. The fi rst derives from the exposure
of the economy to uncertainty and risk arising from external and internal