Financial Crisis: Risks and Lessons for Islamic Finance

By Habib Ahmed. ISRA International Journal of Islamic Finance, 2009

140 citations recorded by the source corpus.

The severity of the current financial crisis has shaken the foundations of the capitalist financial system and has led to the search for ideas and solutions. This paper identifies the failure of risk mitigation at different levels as the main cause of the crisis. While following the principles of Islamic finance would have prevented the occurrence of the crisis, the practice of Islamic finance of mimicking its conventional counterpart can make the industry vulnerable to similar crises. Lessons for the Islamic financial sector are drawn by suggesting ways in which risks can be mitigated at the levels of institutions, organisations and products. In doing so, some key risks arising in Islamic finance are identified and various ways in which the Islamic finance sector can be made stable and resilient are proposed.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/551fbf214e92e71a23eea8beb666be03e4fe3656

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Citations in the corpus

The global financial crisis and Islamic finance (2011, background): “Some specific risks arising in the new financial structure are: (i) lax RM practices; (ii) under-pricing of risk; (iii) leverage/under capitalization; (iv) risk transfer; (v) creation of new risk; (vi) difficulty in assessing risk; (vii) breakdown of relationship between lender and borrower; (viii) ”
The governance, risk-taking, and performance of Islamic banks (2016, unknown): “3 Islamic banks are neither exposed to toxic securities nor offered products like CDOs or MBS due to the prohibition by the Shari’ah (Ahmed 2009).”
Shari’ah supervision, corporate governance and performance : conventional vs. Islamic banks (2015, background): “They were neither exposed to toxic securities (Desai, 2008; Brewster, 2008) nor offered products like collateralized debt obligations (CDOs) and mortgage backed securities (MBS) due to Shari’ah prohibitions (Ahmed, 2009).”
How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests (2014, background): “Ahmed (2009) claims that the global financial crisis has revealed the misunderstanding and mismanagement of risks at institutional, organizational and product levels.”