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  • Islamic Finance: Prepared By: Roziarnedah Binti Zor 2008279448 Prepared For: Pn. Faridah Najuna Binti Misman

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    This document discusses whether the Islamic financial system could provide solutions to issues like credit crunches. While Islamic finance aims to avoid interest, it has largely modeled itself after conventional systems. Both seek material goals and use similar structures, so Islamic products often resemble conventional ones. Commentators point to Islamic finance as stable during the credit crunch because its small size allows private resolution of problems. Islamic funds also avoid debt-heavy companies, and Middle Eastern banks have cash reserves from high oil prices insulating them from liquidity issues seen in the West. The document advocates gold/silver currency instead of paper/digital money to prevent uncontrolled money creation and increase stability.

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    This document discusses whether the Islamic financial system could provide solutions to issues like credit crunches. While Islamic finance aims to avoid interest, it has largely modeled itself after conventional systems. Both seek material goals and use similar structures, so Islamic products often resemble conventional ones. Commentators point to Islamic finance as stable during the credit crunch because its small size allows private resolution of problems. Islamic funds also avoid debt-heavy companies, and Middle Eastern banks have cash reserves from high oil prices insulating them from liquidity issues seen in the West. The document advocates gold/silver currency instead of paper/digital money to prevent uncontrolled money creation and increase stability.

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    35 views7 pages

    Islamic Finance: Prepared By: Roziarnedah Binti Zor 2008279448 Prepared For: Pn. Faridah Najuna Binti Misman

    Uploaded by

    Roziarnedah Zor
    This document discusses whether the Islamic financial system could provide solutions to issues like credit crunches. While Islamic finance aims to avoid interest, it has largely modeled itself after conventional systems. Both seek material goals and use similar structures, so Islamic products often resemble conventional ones. Commentators point to Islamic finance as stable during the credit crunch because its small size allows private resolution of problems. Islamic funds also avoid debt-heavy companies, and Middle Eastern banks have cash reserves from high oil prices insulating them from liquidity issues seen in the West. The document advocates gold/silver currency instead of paper/digital money to prevent uncontrolled money creation and increase stability.

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    MARA UNIVERSITY OF TECHNOLOGY

    FIN 545 ISLAMIC FINANCE


    PREPARED BY: ROZIARNEDAH BINTI ZOR 2008279448 PREPARED FOR: PN. FARIDAH NAJUNA BINTI MISMAN

    BOOM, BURST, CRUNCH:


    IS THERE AN ISLAMIC SOLUTION?

    SUMMARY:

    The credit crunch has sponsored much discussion on the need for a new approach to banking and finance. While the Islamic financial system has been mentioned as a possible alternative in this regard, it is widely recognised that this system has itself been largely modelled on its interest-based counterpart. Both share the same material goals and adopt the same institutional structures, with the result that the products promoted by the Islamic finance industry are often indistinguishable from those of interestbased institutions.

    Factor that leads to increased market volatility is the facility that exists for buying shares on deferred payment terms, or for selling them on deferred delivery terms. The most powerful destabilizing factor of all in modern markets is the activity of money creation by the banking system.

    Why are some commentators pointing to Islamic finance as an example of stability during the credit crunch?

    Firstly, the Islamic finance industry is relatively small compared to its conventional counterpart, and the problems that it is experiencing can therefore be resolved mostly in private. Secondly, Islamic investment funds avoid investing in the shares of companies that are heavily indebted with interest-based loans (the shares of such companies have naturally performed better than those of companies that are heavily burdened by debt). Thirdly, the banking system is awash with the inflows of cash that have resulted from the high oil prices of recent years and this has so far insulated them from the liquidity problems that are being suffered by western banks.

    For this reason, Muslim thinkers such as Tun Dr. Mahathir Mohamad have promoted the use of gold and silver as legal tender in place of 'representative' forms of money such as paper and electronic data. Under the precious metal monetary system, no organisation has the power to create money without cost, and this is one important guarantee of stability in the monetary system.

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