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Islamic finance: an alternative financial system for stability, equity, and growth

Author

Listed:
  • Hossein Askari

    (The George Washington University)

  • Noureddine Krichene

    (University of California at Los Angeles)

Abstract

Conventional finance has long been plagued by crises that cause economic dislocations and impede sustained economic growth, with banks and non-bank financial institutions requiring periodic bailouts. Numerous developing countries have been unable to mobilise domestic and foreign financial resources for development while many advanced countries continue to be plagued by recurring financial crises. A number of eminent economists have denounced the shortfalls of conventional banking and have advocated 100% reserve banking as the stable foundation for a financial system, a recommendation that happens to coincide with the Islamic financial system. The Islamic financial system is characterised by a two-tier banking system with 100% reserve deposit system and risk-sharing equity or investment banking akin to a mutual fund, and the prohibition of interest and interest-based transactions. Islamic finance promotes risk sharing and an efficient risk-sharing vehicle would be a stock market that operates along Islamic principles that prohibit interest and interest-based leverage.

Suggested Citation

  • Hossein Askari & Noureddine Krichene, 2014. "Islamic finance: an alternative financial system for stability, equity, and growth," PSL Quarterly Review, Economia civile, vol. 67(268), pages 9-54.
    • Handle: RePEc:psl:pslqrr:2014:12
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/11984/11824
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    References listed on IDEAS

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    Cited by:

    1. Hossein Askari & Noureddine Krichene & Abbas Mirakhor, 2014. "On the Stability of an Islamic Financial System," PSL Quarterly Review, Economia civile, vol. 67(269), pages 131-167.
    2. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.
    3. Carlo D'Ippoliti, 2014. "Introduction: continuing the debate on Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(269), pages 127-129.
    4. Hossein Askari, 2015. "Severe Financial Crises and Fundamental Reforms: The Benefits of Risk-Sharing الأزمات المالية الخطيرة والإصلاحات الأساسية: فوائد تقاسم المخاطر," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(1), pages 93-128, January.
    5. Carlo D'Ippoliti, 2014. "Introduction: welcoming a new editorial board," PSL Quarterly Review, Economia civile, vol. 67(268), pages 3-8.

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    More about this item

    Keywords

    Islamic finance; financial stability; interest; risk sharing;
    All these keywords.

    JEL classification:

    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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