Many in the Islamic finance community found an opportunity in the global financial crisis to boast or at least be a little smug. The problems in the western banking system were a vindication of Islamic finance, practitioners would say: no Islamic bank, anchored on tangible assets, could have got messed up with CDOs and other derivatives. The safest way was the Shariah way.
To an extent, they had a point. But the smarter members of the industry recognized that, while Islamic finance came through the crisis in far better shape than its conventional equivalent, it was a long way from being bulletproof.
In mid-2008, with the crisis in the conventional world intense, Euromoney asked professor Rifaat Ahmed Abdel Karim – then secretary-general of the Islamic Financial Services Board (IFSB), the Kuala Lumpur-headquartered body tasked with bringing harmony of approach and financial prudence to the Islamic banking industry – if the...
