Co-Financing in the Context of Islamic Banking

Syndicated loans are defined as drawing up an agreement between two or several lending institutions to jointly provide loans to applicants. Syndicated loans arrangement for corporate finance could be made operational within the framework of Islamic Financial System and the Law on Usury Free Banking. In light of availabity of more information and higher intensive oversight Viz-a-Viz extension of syndicated loans on activities of the credit recipients, the problem of asymmetry of information could be less pronounced. Thus, the risk of adverse selection and moral hazard which are common in banking practices are better managed, and consequently by creating more incentives for banks and credit institutions to use PLS mode of finance through applying operational frameworks which are more consistent with Islamic finance, they may create better opportunities to achieve higher returns on their investment targets.