PLS ON ASSET SIDE

Venture capital organization (VCO) is a group of Islamic banks establishes a venture capital fund which purpose to invest in troubled companies acquire public corporations facing privatization. This organization will help if the company hold only a small proportion of equity along with the management and the institutional investors. Debt instrument which implies in his model is no based-interest since they are Islamically accepted mode of financng like leasing and mark-up. The VCO provides a balance of power between management and other owners who have a financial stake in the firm. the shareholders are passive capitalist and share decision making with management to run the organization. the value of this organization is more better than other organization. Managers who hold shares in VCO, will be productive because they hold private information about the project.In addition, joint ownership between managers and other shareholders affect alignment of interest between them. VCO strategic controls will replace financial controls since all managers involved in managing the company and decision making. besides that, these control will encourage long-term investments in projects, which can the firm's value. In a VCO, decision making will be less costly and decision will be made more quicker.
Not all investments of Islamic banks, however, will be through VCO or the arrangements like universal banking.such a vehicle. For monitoring other investments, Islamic banks should jointly set up a monitoring agency a major task of which would be collecting data and other relevant information about the firms in which Islamic banks have stakes. If not feasible due to free-rider problem, individual banks may create separate monitoring sections in their credit departments. This requires recruitment of a couple of credit/investment analysts and should not be too costly. In Muslim countries where most banks have no or the least developed corporate finance departments, this suggestion may seem premature. But creation of an enabling environment for successful functioning of PLS will eventually necessitate such a development. 





Reference:
http://www.kantakji.com/media/3089/v138.pdf

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