ABSTRACT
The financial services industry was heavily affected by the global financial crisis of 2008. Not only was the crisis set in train by a collapse of one segment of the sector (the US subprime mortgage market), but ever since, the sector has seen sluggish growth in comparison to preceding decades. This slowdown has been in part due to the loss of confidence by savers and borrowers, and the reduction of institutional liquidity available for investment and corporate financial projects, but also to the overall resultant economic slowdown that has impacted the economies of the industrialised world. This slowdown represents a contagion from the financial collapse into the real economy and it can be seen in sharp relief in the European Union, where the efforts to grapple with the high levels of public debt created during the massive bailouts of banks in the crisis have led to the major contractionary set of fiscal policies known as “austerity policies” (Blyth, 2013). The financial sector of the developed Western economies appears therefore to have entered a period of quasi-permanent crisis, which is leading to a critical questioning of its fundamental tenets and some of that critique is well-represented in the other chapters of this volume. One particular line of questioning that has begun to draw attention as some European economies submerge under a mountain of public and private sector debt is that associated with the Islamic approach to finance in general and to lending in particular, with a significant interest both in understanding it and in exploring the degree to which Islamic financial products may offer viable and preferable complements to those of conventional Western finance. This interest is only heightened by the realisation that the countries which practise Islamic finance have barely noticed the financial crisis directly. In this chapter, we will examine some of the fundamental tenets of an Islamic approach to finance and to economics in general, with a view to identifying aspects which may entail more general lessons for a better and more ethical approach to the organisation of the financial sector and to the behaviour of actors therein.
