Whether Islamic Banking is the solution of financial crises?



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Traditional Banking is based on interest

2 Answer(s)


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The 2008 Financial crisis resulted due to excessive risk taking using derivative instruments. Not sure how islamic banking will help solve that. Derivatives are not interest bearing instruments and would still function within an islamic banking system.

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At a primary level all financial instruments and transactions must be free of at least the following five items: (i) interest/ riba (usury), (ii) rishwah (corruption), (iii) maysir (gambling), (iv) gharar (unnecessary risk) and (v) jahl (ignorance).
According to the shariah for a sale to be valid, (a) the commodity or underlying asset must currently exist in its physical sellable form and (b) the seller should have legal ownership of the asset in its final form.

These conditions for the validity of a sale would obviously render impossible the trading of derivatives.

Holy Quran says that interest (ribah) is not permissible because it is not profit, rather an extra amount earned with no specific business or any justified basis. So no business deal that makes one party pay more than the other or that involves those risks that can be avoided, are not permissible in islam.

Thanks

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