Islamic Finance – Islamic Capital Finance - Cash and securities that bear interest
In contemporary finance, liquidity is crucial. The most liquid class of assets is cash and interest-bearing assets, which are essential for a business to continue operating profitably. Since it produces little to no return, liquidity has a cost. The standard for determining whether a firm has sufficient cash and interest-bearing assets is that their combined value cannot be greater than 30% or 33% of the company's market capitalization or total assets. Experience demonstrates that many businesses have used this criteria to permit them to include minimal investments in interest-bearing instruments. This may be the outcome of a practical belief that neither the company nor its shareholders should be required to "pay a price" as a result of the absence of Shari'ah-compliant liquidity instruments on the global market. However, this cannot be justified in terms of Shari'ah and might only be a temporary solution.
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