The asymmetric information risks; between the classical financing formulas and the Islamic financial industry

Asymmetric information reflects the lack of information status among the funding (financing) institutions; which negatively affects their decisions towards the institution that is supposed to have a clear picture about its financial situation and its future strategy. Concerning the funding through the capital contribution, the information asymmetry compensation led to an increase in the transactions and the monitoring coasts. As for the debt financing institutions, the risk lies in the moral hazard, the adverse selection problems and the credit rationing. The objective of this paper is to highlight and to examine the Islamic financing formulas' ability to address the various problems, related to the asymmetric information.