The document discusses the global financial crisis and proposes Islamic finance as a solution. It provides background on the causes of the crisis, including risky mortgage products and loose lending practices. It then outlines several principles of Islamic finance, such as prohibitions on usury and speculation, that could have helped avoid the crisis. The finance minister of Bahrain is quoted saying that adhering to Islamic rules helped the country avoid riskier assets and weather the recession well. The conclusion argues that Islamic finance principles of linking finance to real economic activity could help reduce debt and speculation and promote stability.

1. THE GLOBAL FINANCIAL CRISIS AND THE
ISLAMIC FINANCE SOLUTION
GROUP MEMBERS;
ABDUL MUTALIF BIN ABDUL RAZAK
HENRY ANAK MEDANG
WAN HASRIE

2. INTRODUCTION…….
 The global financial crisis, brewing for a while, really started to show its
effects in the middle of 2007 and into 2008. Around the world stock
markets have fallen, large financial institutions have collapsed or been
bought out, and governments in even the wealthiest nations have had to
come up with rescue packages to bail out their financial systems.
 On the one hand many people are concerned that those responsible for
the financial problems are the ones being bailed out, while on the other
hand, a global financial meltdown will affect the livelihoods of almost
everyone in an increasingly inter-connected world. The problem could
have been avoided, if ideologues supporting the current economics
models weren’t so vocal, influential and inconsiderate of others’
viewpoints and concerns.

3. WHAT CAUSED THE GLOBAL FINANCIAL CRISIS?
 One of the main culprits that is often pointed to as
one of the main triggers of the global financial crisis
are the mortgage derivative products, where risky
mortgages were packaged with more traditionally
secure mortgages and sold to corporate investors
and other banks as secure investment products.

4. WHAT CAUSED THE GLOBAL FINANCIAL CRISIS?
CONT’D
 This packaging of mortgages is generally accepted
to have masked the real risks that were linked with
such a product, which gradually grew as lending
criteria were loosened in the first five or six years of
the twenty first century.

5. CAUSES AND CONSEQUENCES OF FINANCIAL
CRISIS
Causes of financial crisis & Risk/Consequence
 Leverage
Borrowing to finance investment
Risk
(Bubble that leads to bankruptcy)
 Asset-liability mismatch
The disparity between a bank’s deposits and its long term assets leads
to the inability of banks to renew short term debt they used to finance
long term investments in mortgage securities
Risk
Bank runs
 Money supply
Uncontrolled printing of paper money that is not backed by realassist/commodity
(gold)
Risk
Higher inflation

6. CONTINUED….
 Regulatory failure
Improper (insufficient/excessive) regulatory control:
-Insufficient regulation:
1) Results in failure of making institutions’ financial situation
publicly known (lack of transparency)
2) Makes it possible for financial institutions to operate without
having sufficient assets to meet their contractual obligations.
-Excessive regulations that require banks to increase their capital
when risks rise leading to substantial decrease in lending when capital is in short
supply
Risk/Consequence
-Excessive risk-taking
-Financial crisis (of 2008)
Potential deterioration of financial crisis.

7. CONTINUED…..
 Fraud, corruption and greed
-Enticing depositors through misleading claims about their investment strategie
and manipulating information.
-Creating financial assets without any real economic activity
-Extreme economic greed overrides basic ethical consideration in investments
Risk/Consequence
Subprime mortgage crisis
 Contagion
Where the failure of one particular financial institution to meet its
financial obligations (due to lack of liquidity, bad loans or a sudden
withdrawal of savings) causes other financial institutions to be unable
to meet their financial obligations when due. Such a failure may
cause damage to many other institutions and threatens the stability of
Financial markets.
Risk/Consequence
Systemic risk

8. GLOBAL RECESSION IS A SIGN OF CAPITALISM’S END ONLY ISLAM
CAN SOLVE THE ECONOMIC PROBLEM
 Hizb ut-Tahrir in Bangladesh organized an Economic Conference at the
National Press Club titled "Global Recession: Impact on World - Islam's
Economic Alternative". Three speeches were delivered on the following
topics:
 1. Capitalism is inherently flawed and causes crises;
 2. Causes of current global recession and failure of the patchwork
solutions of Capitalism;
 3. Only the Islamic economic system under the Khilafah state can
provide crisis-free economic justice

9. GLOBAL RECESSION IS A SIGN OF CAPITALISM’S END ONLY ISLAM
CAN SOLVE THE ECONOMIC PROBLEM- CONT’D
 Mahmudul Hasan Foyzi said ‘the fundamentals of the capitalist system
are responsible for the current economic disaster. These include
absolute freedom of ownership, focus on production rather than
distribution, paper based currency, usurious banking system, and the
financial sector based on speculation.
 Second speaker Abu Hamza Al Mamun delivered his speech on
‘Causes of current global recession and failure of the patchwork
solutions of Capitalism.‘
 Materialistic and consumption oriented thinking of capitalism is the main
reason for the collapse of financial market of USA and later
transformation of this crisis from US domestic crisis to a global
crisis.After that US credit market and related derivatives products
attracted global investors

10. GLOBAL RECESSION IS A SIGN OF CAPITALISM’S END ONLY
ISLAM CAN SOLVE THE ECONOMIC PROBLEM- CONT’D
 When US federal reserve increased the interest rate,
borrowers defaulted, which affected all sectors resulting in
the global recession now. To solve the crisis, US-EU have
taken multiple rescue packages, by printing money they
wanted to reduce the liquidity crisis, reduction of interest
rate and altering regulations - all of which have failed.
 Problem is capitalism itself. By saving the problem i.e.
capitalism, no solution can be achieved.

11. GLOBAL RECESSION IS A SIGN OF CAPITALISM’S END ONLY ISLAM CAN
SOLVE THE ECONOMIC PROBLEM- CONT’D
 Mohiuddin Ahmed in his speech titled ‘Only the Islamic economic
system under the Khilafah state can provide crisis-free economic justice'
said the export sector in Bangladesh is now suffering due to the global
recession as Bangladesh economy is run according to the capitalist
system. As well as this the economy is designed to serve the imperialist
countries.
 It is time for the Muslims to throw away the capitalist system which is on
its deathbed now. We have seen the collapse of communism aw well.
Allah , the Creator of the Universe, gave us economic system
free from crises and secures justice and tranquillity. Islam prohibits all
the factors that lead to economic crises in the first place.

12. BAHRAIN FINANCE MINISTER:ISLAMIC RULES SAVED US FROM
RECESSION
 Manama, Bahrain (CNN) -- Bahrain's finance minister said
adherence to strict Islamic rules helped his country escape the
worst of the global recession. Finance Minister Sheikh Ahmed bin
Mohammed al Khalifa predicts growth of four percent for
Bahrain's economy this year, saying "long-term consistent
growth" is the kingdom's goal. Sheikh Ahmed said the country
"built an economy that is resilient, that is able to withstand shock.“

13. BAHRAIN FINANCE MINISTER:ISLAMIC RULES SAVED US FROM
RECESSION –CONT’D
 "We've gone through this period very well. I think the
diversification of our economy has helped us tremendously,"
he told CNN. Asked how the kingdom avoided some of the
riskier assets that ended up crippling other economies, the
minister said:
 "Looking at Islamic finances and industry, because they are
barred by their own rules from some of the creative
products, they were able to stay away from those
industries."

14.  "We've gone through this period very well. I think the
diversification of our economy has helped us
tremendously," he told CNN.
 The minister also said: "Looking at Islamic finances and industry,
because they are barred by their own rules from some of the creative
products, they were able to stay away from those industries."
 “We built an economy that is resilient, that is able to withstand
shock.”

15. CONCLUSION
 Principles of Islamic finance could have helped avoiding the
crisis, and could alsohelp to recover from it. As discussed
above, Islamic finance integrates financialactivities with
wealth creation, thus greatly reduces the chances for
excessive debtand speculation. Islamic finance also gives
an essential role for non-profitactivities, which act as
economic and social safety net in case of downturns
andrecessions.

16. CONCLUSION-CONT’D
 Overall, therefore, Islamic principles of finance promote
productiveand stable economic activities.The essential
principles of Islamic finance are not specific to the
Islamic faith.They are shared by all Divine religions and
many worldly beliefs as well. Themessage of Islamic
finance, while ethical, is also universal. At a time when
worldleaders are calling for paradigm change and
financial reform, it is important toreintroduce into our
financial systems ethical and moral principles to serve
thecommon good of humanity.

17. THANK YOU
YOUR QUESTION?