Global Financial Crisis and Islamic Alternative: Trend News Commentator
B.Hasanov, the commentator of the Middle East service of Trend .
The global financial crisis caused serious criticism in the capitalistic system and banking business. Specialists state that the system has become obsolete. The financial crisis caused approximately $3mln damage to the United States. On the other hand, the initiative to rebirth the socialistic economic system was not supported.
The simple question on this stage, over which specialists are being worked most, is to upgrade the banking business within the capitalistic system through reforms. The work of up-to-date banking systems, particularly, depends on percentage rate. The client, who applies to the bank to purchase property or willing to open his own business, is granted with money advance. Client, in his turn, must pay the sum with percentage rate that the bank has defined. Bank takes incomes from such operations.
One of the risky moments in the system is bankruptcy of client, who took credit. Despite of the availability of control mechanisms to cut risks to minimum in the modern banking system, the global financial crisis showed that nobody can ever hold the situation in leash.
In a certain period, when the stock prices go up, most clients take credit in banks and invest them in securities. However, serious drop in stock prices leads to bankruptcy of clients, but the taken bank credit turns into debt. If this fact becomes more frequent in the state of the current financial crisis, the bank work principle is paralyzed completely and hundreds of millions and even billion of dollars are 'melt'. The discussions on alternative modern financial and banking system are taking place after the global financial crisis. The Islamic banking is the most attractive system.
Despite of the problems caused by the global financial crisis, the Islamic financial market has been rising for the latest three years by 15% per year. $700bln capital is turning over in world under the Islam rules. The insignificant influence of the financial crisis on Islamic banks accelerated attention on its working mechanism. According to the Turkish Time Turk news agency referring to the Financial Times, the Japanese Government has launched reforms in the banking system under the Islamic banking system. The reason for such a careful attention on the system is its working mechanism, which compensate risks. One of the main peculiarities of the Islamic banking is that they do not purchase and sale debts. No money is taken or given under percent. The capital of Islamic banks is provided via the cooperation on partnership with investors. Here, bank puts investor's savings in turnover and pay to investor the beforehand specified share of the income. Investor has right to follow the use of his capital. Bank requires any premise, from the client, who want to take credits, instead of cashes. To purchase a premise, which does not have any concrete value, for example stocks, is impossible. Bank purchases the premise or real property and then sells it to client by imposing on the premise certain yield sum. Client pays the sum which was set by bank stage by stage. There are two things that are of the most interest, which differ the Islamic banking from the modern banking system. First, to free client from percentage burden, and second, to invest in moveable and real property at the expense of market prices.
In the modern banking system capital is invested at the expense of bank credits in stocks, the further value of which is unknown. Capital is invested at the expense of direct purchase of movable or real property for market value. Undoubtedly, the banking system, which is working on the ground of mechanism, which is insured from risks. The alternative of Islamic financial and banking system to the modern financial system is in its protectability from risks.