An Islamic Suggestion of Solution to the Financial Crises

• Published in: Procedia economics and finance 2016, Vol.38, p.174-184
• Main Author: Ozsoy, Ismail
• Format: Article
• Language: English
• Subjects: Interest/usury/riba; Islamic finance and banking; mudaraba; the Hadith of Six Things; time value of money (goods); trade
• ISSN: 2212-5671; 2212-5671
• DOI: 10.1016/S2212-5671(16)30188-5

Islamic finance and banking has been an appealing phenomenon in the recent decades particularly after its suggestion by the Vatican in the aftermath of the 2008 Global financial crisis. Rejecting interest policy as an instrument for any business activity, Islamic banking is based on the non-interest substitutions that are profit, rental, commission, and wage, all of which are regarded as legitimate earnings of trade, its kinds, leasing, joint venture and partnerships, and other lawful and real productive economic activities. From Islamic perspective, interest is a value that is transferred from one party to another in any transaction without any matching value given back, resulting in an unequal distribution of income between individuals or groups. It takes place not only in loans but also in the sales of goods for each other or in the exchanges of currencies as well. The saying of the prophet Muhammed called “The Hadith or Saying of Six Things” concisely expresses 66 sales/exchanges that bear interest out of at least 114 transactions included in that saying. After dealing with that saying and defining the kinds of interest by making use of this saying, this paper tries to introduce some solutions to financial crises as a reply to the suggestion of the Vatican, and then it briefly introduces non-interest finance modes of banking and finance.