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The global financial crisis and its implications for the Islamic financial industry


  • Edib Smolo
  • Abbas Mirakhor


Purpose - The purpose of this paper is to review the evolution of the global financial crisis, draw lessons from it, and analyse its effect(s) on the Islamic financial industry (IFI). Design/methodology/approach - Based on an extensive literature review, this paper aims to highlight, explain, and discuss the implications of the global financial crisis for IFI and suggest necessary steps for the future development of the industry. Findings - The findings show that although the crisis had limited impact on IFI the major flaws of the capitalist financial system are relevant to the development of IFI. Without learning and applying the lessons from the crisis, IFI runs a risk of committing the same mistakes. Finally, greater attention should be given to the fundamental principles of Islamic finance in order to ensure the future development of industry. Research limitation/implications - The effects of the global financial crisis are still being felt all over the world, and its implications on IFI have yet to be fully understood. Owing to unavailability of relevant data, an empirical study is needed to show the real effects of the crisis on IFI. Originality/value - The lessons drawn in this paper will raise awareness among both academicians and practitioners about the inherent weaknesses of current financial practices. Furthermore, the paper highlights the major areas that need to be improved for the future development and success of IFI.

Suggested Citation

  • Edib Smolo & Abbas Mirakhor, 2010. "The global financial crisis and its implications for the Islamic financial industry," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 3(4), pages 372-385, November.
  • Handle: RePEc:eme:imefpp:v:3:y:2010:i:4:p:372-385

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    References listed on IDEAS

    1. Sudin Wan Nursofiza Wan Azmi, 2008. "Determinants of Islamic and conventional deposits in the Malaysian banking system," Managerial Finance, Emerald Group Publishing, vol. 34(9), pages 618-643, August.
    2. repec:wsi:rpbfmp:v:09:y:2006:i:02:n:s0219091506000732 is not listed on IDEAS
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Michael Mussa & Morris Goldstein, 1993. "The integration of world capital markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 245-330.
    5. Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
    6. M. Shabri Abd. Majid & Ahamed Kameel Mydin Meera & Mohd. Azmi Omar, 2008. "Interdependence of ASEAN-5 Stock Markets from the US and Japan," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 201-225.
    7. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
    8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    9. W. N. W. Azman-Saini & M. Azali & M. S. Habibullah & K. G. Matthews, 2002. "Financial integration and the ASEAN-5 equity markets," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2283-2288.
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    1. repec:eee:quaeco:v:66:y:2017:i:c:p:212-224 is not listed on IDEAS
    2. repec:eco:journ1:2017-06-3 is not listed on IDEAS
    3. Rashidah Abdul Rahman & Siti Balqis Noor & Tariq Ismail, 2013. "Governance and Risk Management: Empirical Evidence from Malaysia and Egypt," International Journal of Finance & Banking Studies, Society for the Study of Business & Finance, vol. 2(3), pages 21-33, July.
    4. repec:bla:acctfi:v:57:y:2017:i:3:p:623-655 is not listed on IDEAS

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    Islam; Finance; Capitalist systems; Debts; Interest;


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