Business | Banking
Islamic financial institutions still largely unscathed
Islamic financial institutions have been largely sheltered from the present crisis, Central Bank of Bahrain Governor Rasheed Al Maraj said. However, he warned that there should be no room for complacency.
- By Habib Toumi, Bureau Chief
- Published: 23:42 November 12, 2008
Manama: Islamic financial institutions have been largely sheltered from the present crisis, Central Bank of Bahrain Governor Rasheed Al Maraj said. However, he warned that there should be no room for complacency.
"It is inevitable that they will be affected to some degree, as they are part of the wider global economic system. The effects of the global financial crisis on the real economy have the potential to transmit shocks to Sharia-compliant institutions as well. This means that there must be a very high priority placed on sound management and risk management practices at Islamic financial institutions," Al Maraj said.
"So far, Islamic financial institutions have escaped relatively unscathed from the severe downturn which is affecting most conventional financial institutions.
"This certainly presents the industry with an opportunity to continue its successful growth of recent decades.
"Because interest-based transactions are prohibited, Islamic finance encourages business and trade activities that generate fair and legitimate profit. The prohibition on speculative activity also helps to ensure that there is a close link between financial flows and productive activities.
"These intrinsic properties of Islamic finance contribute towards insulating it from the potential risks resulting from excess leverage and speculative financial activities," Al Maraj said.
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