The Credit Crunch and Islamic Finance: Shari’Ah-Compliant Finance Against the Backdrop of the Credit Crisis
TISCO Working Paper Series on Banking, Finance and Services No. 01/2011
17 Pages Posted: 20 Jan 2011 Last revised: 7 Apr 2011
Date Written: January 18, 2011
This article deals with the question whether principles used in Islamic finance could have mitigated the effects of the crisis of credit. The authors discuss the main causes of the credit crunch, followed by a description of the main principles of Islamic finance. Through an analysis of financial instruments that are regarded as the main causes of the crisis of credit, the authors make a comparison between the conventional financial system and the Islamic financial system. Are there lessons to be learned from Islamic Finance in this respect?
Keywords: Islamic finance, credit crunch, credit crisis, financial instruments, finance, financial system, securitization
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