The global financial crisis, securitization and Islamic finance : an opportunity for inward and outward reform

Abstract EN

It is often contended by academics and practitioners in the Islamic finance industry that the global financial crisis would not have happened if the international financial markets had followed the principles of Shariah, especially in the asset securitization sphere.

This article attempts to respond to these assertions by examining the factors that contributed to the global financial crisis alongside an analysis of how Islamic finance could have been of value in its aversion.

Specifically, the article provides details on the origins of the global financial crisis, its evolution and triggers.

It then proceeds to investigate the financial principles, both conceptually and practically, in the Islamic securitization (Sukuk) model.

Ultimately, it is argued that from a conceptual standpoint, Islamic financial principles would have served to avert the crisis; however, contemporary Sukuk practices would have only been likely to reduce the probability of its occurrence.

This outcome is important insofar as it assists the Islamic finance industry achieve its full potential, which includes the capability of proposing effective reforms to the international financial architecture.