ISLAMIC FINANCE MUST TURN TO THE ROOTS!

By Muhammad Ayub

Abstract

The global economy is facing a deep downturn as a result of the crisis. It was due to excessive ability to create money and credit for earning increasing profits without creating anything of value for use by the mankind. The system needs radical change in the approach, principles and the operation of economic and financial systems. Creation of money, and lending it on interest – interest based debts and financial obligations leading to undue receivables for the lenders, is the biggest and primary problem of the conventional system. Islamic principles of finance provide checks for the factors that have distorted the system. Enhanced supply of risk-related capital, restricted risk taking, balanced return rate structure based on the real sector economic activities, and supply of money commensurate with prospects of growth in an economy, provide a sound basis for sustainable development. Hence, Islamic financial institutions and markets have better ability to sustain in the hard times. Islamic banking industry should not only have escaped unharmed during the crisis, it should also have availed the opportunity of developing into the mainstream system with a new paradigm; but, it failed to take advantage of the opportunity because Islamic banks adopted the same products with some cosmetic amendments. To serve the mankind, Islamic finance must turn to its roots and try to avoid doing the same, before the process becomes irreversible.