AVOIDING FINANCIAL CRISIS: IN SUPPORT OF ISLAMIC FINANCIAL INSTITUTIONS

The unfavourable outcomes of the 2008 Global Financial Crisis (GFC) have led to the search for an alternative to the conventional form of banking and finance. Non-interest finance such as Islamic finance has been gaining popularity in recent times, and claims have been made regarding the superior stability of the Islamic financial system (Khan, 1987). Authors such as Hasan & Dridi (2010) support this view by pointing out that Islamic financial institutions (IFIs) have routinely performed better than their conventional counterparts during financial crises.

This research is motivated by the increasing popularity of Islamic finance. It seeks to evaluate support for establishing an Islamic financial system. In this respect, it discusses how financial crises in the past might have been avoided in such a system. It also examines some of the arguments against the establishment of an Islamic financial system.