Keywords: financial capital democratisation, finance, microfinance, agency, Islamic finance, economic development, economic growth, regulation, business ethics, ESOP, stock options, moral hazard, financial crisis
Financial capital democratisation: recipes for growth and disaster
The broadening of access to financial capital otherwise known as financial capital democratisation (FCD), has been receiving increasingly more attention, especially from those who are concerned about poverty, community development and development of entire nations. This concept has also its roots in ethical and religious based economic systems. In this paper we review various FCD systems. Our main conclusions are that the current crisis is due to severe adverse selection and moral hazard problems, that a new theory calling for acquisition of financial capital with the future earnings of capital sounds promising, the impact of the CRA in the USA is mostly negative, first-time home buyer grants as well as ESOPs and stock options in the work place have achieved some success and that micro financing is good for individual small-scale entrepreneurs but not sufficient for the alleviation of poverty in a developing nation. The paper also explores Islamic financing concepts and analyses its roots in FCD application, given wider interest generated for such financing techniques during the recent market upheavals when Islamic financial institutions seemed less affected by the crisis.