Islamic Financial Lesson To World

Hey America, you listening? Time to realise that greed is not always the answer, and just where DID Bernie Madoff put all that money?

Many analysts said that the Islamic financial system would suffer least from the financial crisis. Islam bans the interest rate, which is the basis of wealth and the source of trouble for the traditional world of money.

The interest collection ban and complicated financial tools helped Islamic banks avoid huge losses under the default on debts, which made the world financial system collapse.

“Islamic largest banks enjoy a much more stable position than the largest banks of the USA. My calculations said that the return of sales of four largest banks of the Islamic world was twice as much as those of five largest banks of the United States. The return of assets and the capital of the Islamic banks turned out to be considerably higher in comparison with US banks,” Zarina Saidova, an analyst with Finnam Investment Company told Bigness.ru.

Equality is one of the peculiar features of the Islamic economy, which makes it different from the Western style of the financial system. The Islamic economy is not based on the principle of deriving as much profit as possible. It also excludes all most popular forms of financial speculations which are so typical of the traditional system of economic relations.

As for mortgage services, an Islamic bank and its client agree on the period of the loan, the outpayments and the final price of the house before the loan is issued to the client. If the client is unable to pay for the house, the latter will be put up for auction, and the profit will be divided between the bank and the client. Therefore, both the bank and the client bear responsibility for the deal.

“It is worthy of note that the debt burden of the largest Islamic banks, just like the activity rate to attract borrowed funds, is lower than that of American banks as of 2008. It gives Islamic banks an advantage in terms of credit risks,” Saidova said.

All of the above-mentioned data do not mean, of course, that the crisis has not affected the financial system of the Islamic world. However, the Islamic economy suffered a lot less as opposed to the West.

“The financial indexes of the Islamic banks worsened during the time of the crisis due to the general decrease of the consumer demand and because of massive job cuts in the companies of the world. Low crude prices also affected the situation at this point. Many economically developed Islamic countries are based on crude exports and therefore depend on the fluctuations of prices on black gold,” the specialist said.

“Nevertheless, there were no significant losses reported in their economy. The governments of Islamic states did not have to take urgent measures to rescue their economies. The Islamic banking sector taught a good lesson to the Western financial system at this point,” the expert concluded. link