How crisis-proof is Islamic finance?

Abstract

Purpose This paper aims to explore Islamic finance’s resilience in times of financial crisis and considers Islamic finance’s viability as an alternative to the current financial system. Design/methodology/approach Established on a review of theoretical aspects underlying the notion of Islamic finance being proficient of reducing the harshness of financial crises and a latent solution to financial volatility, this paper assesses actual performance of Islamic and conventional banks during and in the repercussion of the current financial crisis. Interviews were also conducted with managers of Islamic banks. Findings The paper concludes that performance of Islamic banks during the global financial crisis is found to be supportive of their argued resilience and consistency. However, the latest financial crisis has brought to light a number of theoretical and realistic issues that challenge Islamic finance and its absorbing capacity against financial crises. Originality/value The paper is an original work which suggests about moderating risks and proposing various ways in which the Islamic finance can be made more stable and resilient.