(Case study: 2008 Financial Crisis) Constancy of Islamic Banking against Financial Crisis

Document Type : Research Paper

Authors
Mahdi Sadeghi Shahedani
Davood Nasrabadi
10.30497/ies.2016.1899
Abstract
In the past few decades, Capitalist economic system has witnessed different financial crises the most important of which is the 2008 financial crisis. The crisis had different causes that the main causes are innovations and financial assets without actual backing (real underlying asset) and their developing by financial institutions. Namely, financial institutions, especially banks, developed their transactions by investing in financial assets with no real backing.
Banks and similar financial institutions for other reasons, including the lack of adequate monitoring system, Extensive credits with no relevant standards, fiat money creation, log in risky activities and increased leverage were effective in developing crisis.
In this study the role of conventional banking in the development of crisis and on the contrary, the characteristics of Islamic banking in the immunity of crisis is explained.
Islamic financing system is a financial system which is based on real assets, In other words, on real economy. There has been considerable growth in recent years, in Islamic banking which represents a very good alternative to the conventional techniques in the financial system.
Islamic banking through a close relationship with the real economy, financial transparency, supervision and control, distribution of risks and minimal influence of shocks, lending standards, lack of investment in subprime assets, requires detailed risk assessment activities would prevent the recurrence of similar financial crises.
Keywords
Financial Crises
islamic finance
islamic banking
Financial Assets without Actually Backing
profit and loss sharing
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