An Excerpt:
The distinctive elements of Islamic finance are its ethical element (the prohibition of usury and exploitation of the borrower), the preference for trading in real assets (rather than synthetic products), partnership between the investor and investee and its governance structure (requiring a Shariah council).
The point to remember in Islamic finance is that there is no Islamic global reserve currency. Although Islamic banks are growing rapidly, there is no assurance that they are not subject to the problems of non-performing loans and bank runs that are endemic in commercial banking.
What has been most innovative was the launching this week of an International Islamic Liquidity Management Corporation (IILM) aimed to assist institutions offering Islamic financial services in addressing their liquidity management in an efficient and effective manner. This institution addresses one of the fundamental problems of Islamic financial institutions -- the provision of adequate liquidity in times of stress. Once there is an international lender of last resort facility (to supplement and not to replace national facilities), there would be better confidence in the liquidity of the Islamic financial services industry.
