The global financial crisis and Islamic banking: the direct exposure to the crisis

  • Received June 5, 2017;
    Accepted July 3, 2017;
    Published September 4, 2017
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  • Article Info
    Volume 12 2017, Issue #3, pp. 100-112
  • Cited by
    5 articles

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This paper theoretically discusses and reviews the main causes of the crisis, including discrimination, moral failure, poor governance, easy credit, imprudent lending, excessive debt and leverage, and regulation and supervision failure. The implications of the crisis have been reviewed, followed by a critical discussion on the lack of direct exposure to the crisis for Islamic banking, because most, if not all, of the practices and financial instruments that are believed to be responsible for the crisis are not permitted under Islamic banking principles.

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    • Figure 1. The leverage ratio of major investment banks from 2003 to 2007 (Winston Chang, 2011)
    • Figure 2. World stock market capitalisation from 1996 to 2013 (World Federation of Exchanges, 2014)
    • Figure 3. Intrinsic principles of the Islamic financial system potentially capable of safeguarding against financial crises
    • Figure 4. Comparing the governance structure of Islamic and conventional institutions (adapted from Nienhaus, 2007)
    • Table 1. Arabic terms used in this paper