Answer to Question #122011 in Economics for Mohsin Ali

Question

Compared to conventional banking, Islamic banking has been growing rapidly around the world for the past two decades, although few scholars have some reservations on it.

What do you think could be the reasons for the rise of Islamic banking? Explain your answer with authoritative arguments.

Answer 1

Islamic finance has an ‘inbuilt anti-crisis mode’, which is perhaps one of the most compelling reasons why Islamic finance is so relevant to investors across the globe. For a world reeling from the after-effects of the global financial crisis, Islamic banking offers a steadier, safer approach. This is reflected in the in-depth screening process that eliminates companies deemed too risky because of excessive leveraging. The partnership structure of Islamic financing prompts both parties to be mutually responsible thus protecting individual investors.