Islamic finance just one more crisis victim?

April 13, 2009

It’s not just traditional western banks that are hurting — the recession is hitting Islamic finance hard, too.

The industry, which operates according to Islamic law and hence has an in-built conservative investment strategy, is seen as relatively insulated from the financial crisis. But some executives at the Reuters Islamic Banking and Finance Summit are not so sure.

Islamic finance should still be able to combat the crisis better than conventional banks but big problems loom if liquidity remains tight. In fact Sohail Zubairi, head of consultancy Dar Al Sharia, reckons they’re facing up to a crisis scenario that could include forced consolidation and¬†layoffs.

“There is a real threat to the business of Islamic banking,” Zubairi told Reuters reporters at the summit in Dubai. “If the liquidity does not return, we will not be able to continue doing our business.”

Yousif Khalaf, head of Ajman Bank, thinks the situation is so bad that growth and profitability are off the menu for this year.

“What is more important is survival and, to some extent, continuity,” he said. “People want to make sure they survive.”

PHOTO CREDIT: A labourer walks inside Sheikh Zayed mosque in Abu Dhabi April 7, 2009. The mosque, one of the world’s largest, is named after Sheikh Zayed bin Sultan al-Nahayan the founder and first president of the UAE who is also buried there. REUTERS/Ahmed Jadallah


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It seems that the Islamic banks loan money with 0% interest; they follow the Islamic law “Zakat”.
In fact, the countries including almost Muslim states who have abundant oil reserve have less been affected by the world economy depression.

“The rest is silence.” -William Shakespeare

Huy T?, S&FR, Boston, MA.

Posted by Huy T? | Report as abusive

Islamic economies may get effected less if they follow Islamic rules because there won’t be a huge debt/credit bubble due to ‘no interest’ rules.

Posted by Money Guy | Report as abusive