In 2008, as the world slid into what is now known as the ‘Great Recession’, Islamic finance was witnessing something of a resurgence. This faith-based banking hit the headlines as an ethical and sustainable alternative to the conventional, profit-driven banking system. If the financial crisis was caused by irresponsible banking, then Islamic finance – which is risk-averse and anti-speculation – could be the solution went the logic.
But is Islamic finance really the answer to our banking prayers?
In some aspects, Islamic banking does follow more ethical guidelines. It forbids what it calls effortless profit (interest) and generally prohibits investment in activities such as gambling, tobacco, pornography, pork, alcohol, military armament and speculation. It is asset-based which means that wealth can only be generated through legitimate trade and investment in assets. Making money from money is forbidden and it is this principle which has been highlighted by Islamic financial experts as creating a more stable and transparent system of banking. Continue reading