Busted: Bankers and The Global Economy

February 6, 2008

Islamic Banking Protected from Subprime

Filed under: banking, central bank, Islam, money — Tags: , , , , , , , , , , — digitaleconomy @ 12:00 am

Islamic banking, by its nature, is set apart from the traditional banking market. Islam invokes the principles of Sharia, the holy law set forth in the Qur’an. The Qur’an forbids the charging of interest in exchange for a loan or trading debt. Every step of a transaction is carefully reviewed by an Islamic scholar to test for compliance with the tenets of Islam.

islamicbanking.jpgBanks that operate under these principles shun collateral debt obligations linked to subprime (high risk) mortgages because the legal instruments do not comply with Muslim law. Rasheed al-Maraj, Bahrain central bank governor stated: “Islamic banks have been largely shielded from the U.S. mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets. The lack of problems relating to traditional market and financing may serve to enhance the viability of the Islamic banking market and expansion into the U.S. market as prices for real estate continues to drop.

Events within the traditional banking industry and global finance provide an opportunity for growth in an alternative banking market for Islamic banking customers although there remains the risk of falling real estate values in a declining economic situation that currently exists in the U.S. Islamic banking is working on methods to reduce the risk of loss during declining market periods.

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1 Comment

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    Comment by Jenna Saint — March 4, 2008 @ 9:50 am


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