Economic Benefits of Risk Sharing

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Abdul Karim Abdullah

Abstract

Discussions of the benefits of risk sharing tend to be confined to benefits at the company level. These include remaining debt-free and the fact that capital, unlike borrowed funds – apart from listing, legal and other fees – comes at zero cost. What tends to be overlooked is that the use of risk sharing also brings major benefits to society at the macro-economic level. Specifically, it contributes to the realisation of the leading economic objectives of government stabilisation policies. These include an efficient allocation of resources, full employment, stable prices, robust growth, a more even distribution of wealth, and greater cyclical stability. Thus, channeling capital into investment by means of risk sharing in preference to borrowing at interest can significantly alleviate the macro-economic problems currently plaguing most industrialised economies.

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