What is Trickle-Down Effect

The economic system recognizes the role of the financial system as an important cog in its machinery. Several theoretical and empirical studies have evidenced its contributing role to the economy. Within the overall financial system, the Islamic financial system ensures the increase in productivity of capital as well as in the synchronization between the incomes of the rich and the poor. Mudarabah companies stay at the forefront of the Islamic financial system. Their knowledge-intensive approach helps the allocation of resources in long-term ventures and, because of their participation-based setup, they can theoretically cause a trickle-down effect via their redistribution process from the borrower to the lender. Practically, though, this requires the financial institutes such as Mudarabah to be cost-efficient. This chapter explores specifically how efficient Mudarabah companies of Pakistan are in terms of cost minimization, and investigates whether different dimensions of intellectual capital can improve cost efficiency.