Prior to the current global financial crisis, Islamic banking and finance was marginalized and not given much attention by many international financial institutions.
While many "experts", "scholars" and leaders in the field of Islamic banking have asserted that many institutions practicing Shariah principles have been left unscathed during the financial crisis, this is not a surprise to many.
All Islamic products are under the law of the Koran and Shari'a, rather relying any unethical or manipulative business practices. For example, investing in or deriving money from businesses such as tobacco, alcohol, and gambling.
The sheer nature and principles of Islamic banking has not only saved it from the global meltdown, but has placed it in a new, bright spotlight amongst anxious consumers and financial professionals alike. According to many based in the Middle East and Gulf region, a good number of Islamic banks have managed and survived the global financial crisis quite well. Simply put: the strict principles and collective thinking behind Islamic banking has proven to be an honest, solid and profitable way of business. No gambling and speculation within the markets are allowed, therefore sparing these institutions from the collapse of financial systems around the world, most notable in America and continental Europe. According to one CEO based in the Gulf state of Bahrain, Adnan Ahmed Yousif, who runs the Albaraka Banking Group, "Islamic banks do not rely on bonds or stocks, and are not involved in the buying and selling of debt unlike most conventional European and US banks." Yousif added that "Islamic banking is distinguished by the fact that it is prohibited from buying debts under Islamic Sharia law; therefore, Islamic banks are safe from the effects of the global financial crisis. "
Islamic banking has largely escaped the fallout from the global financial crisis, thanks to rules that forbid the sort of risky business that is felling mainstream institutions.
Prior to the global financial crisis and credit crunch, Islamic baking was not held in the high regard it is nowadays. If anything, Islamic banking was looked down upon as too conservative and old-fashioned. Many large financial institutions dismissed it without properly examining it, its principles and widespread usage around the world. In fact, a number of Western financial firms saw Islamic banking and finance as one that was not up to date with more complex markets and not creative or diverse enough to become competitive players in global finance. Islamic banking was considered to be a means of religious facet, as opposed to a business model.
The Islamic banking system was looked upon as something that hindered the growth and development of the financial markets. Today, these theories have been proven wrong, more so as global financial giants that once dominated the markets are either non-existent or have collapsed and been taken over. Islamic banks around the world have stayed strong, and gained popularity. To date, not one Islamic bank following Shariah principles has requested a government bailout or has failed.
While banking activity across the globe started to slow and in some cases, stop all together, practioners of Islamic finance found themselves busier. Suddenly, meetings, conferences and events began to take place, all surrounding Islamic finance. Simply put, Islamic finance was turning a profit, while the world's most prestigious and well-known firms were not. Products of Islamic fiancé-sukuk (bonds) for example, have gained interest. Suddenly, Islamic finance events have become fashionable. Finance and banking professionals are networking and showing increased interest in a system that is based on sharing, honesty and most importantly, has survived the worst global economic downtown since the Great Depression, while also continuing to serve its customers. A very positive impact indeed, as new interest and business prospects await those who can accept Shariah law.
The financial crisis has shown how effective Islamic banking and finance is and its potential to become a leader in global finance. It allows financial companies to reach out to the less privileged, share wealth (as well as debt) and abide by Islamic rules, which attracts even non-religious customers. Its practices are all-inclusive; one does not have to be a practicing Muslim to participate. It raises trust among its consumers and promotes Islamic values and beliefs. The global financial crisis has brought Islamic banking into a positive spotlight, mainly for its non-risk taking rules, its sold foundations and stability. From Indonesia to Malaysia to the Arab states, Islamic banking is growing and becoming more diverse as its appeal to customers has risen. The lack of risk taking that led to the collapse of world markets is an attraction. This is one solid factor that led Islamic banking to remain steady and profitable during the downturn. The impact has been a positive one, with Islamic institutions remaining in place and developing new lines of businesses.
The key factors driving the growth of Islamic finance and banking are regulation, favorable demographics, growing affluence, and growth in organized savings and Islamic finance, greater availability of takaful and Islamic finance products and changing consumer habits, according to Alpen.
