The global economic crisis basically involves a prolonged significant decline in the economic activities of the country and worldwide due to various economic factors such as inflation, financial crisis, and an increase in interest rate. This crisis is known as Economic Depression. Meanwhile, the depression can become worse when hyperinflation hits the economy and resulted to an Economic Collapse.
The economic crisis has greatly affected the country with a slump in the Gross Domestic Product Index (GDP) due to a decline in economic activities such as manufacturing, product selling, and customer services that cause a mass shutdown of operations in businesses and manufacturing industries. To add, the country will also face the problem of shortage of Gross National Income (GNI) due to a decline in exports activities and lack of foreign investors. People will also feel distressed when inflation rate rise, resulting in higher prices of goods which indicates undermining purchasing power, rising cost of living, and partly losing sources of income as a result of dismissals that inevitably increase the rate of unemployment rate in the country.
Historically, economic crisis was seen as unexpected disaster that has occurred numerously. The historical evidence clearly shows that the world is always facing economic crisis that put threats to humankind and also country. In other words, we have no choice but to face the challenge wisely with our intellect, knowledge, senses, and strength to convert it to opportunities instead that can be exploited, utilized and gained for the benefit of the people.
Economic Crisis from Islamic Point of View
The current economic crisis is in fact multi-dimensional, it is not merely caused by economic factors alone but it also links to other non-economic factors. Therefore, this phenomenon must also be seen from various perspectives, especially from a religious perspective.
The Qur’an clearly mentioned that all catastrophes happened are the consequences of people’s behavior and conduct, in which Allah Subhanahu wa Ta’ala urged in Surah al-Syura, verse 30: “If a misfortune (or disaster) befalls you, it is because of what you have committed (of faults and sins)”. Economic crisis existed because people practices unlawful economic activities such as permitting usury that has been banned by all religions and yet, we let it evolved in the core of the economy. Therefore, this economic crisis must be a sign of warnings from Allah Subhanahu wa Ta’ala.
Allah Subhanahu wa Ta’ala forbid the consumption of money through the system of interest or interest practices in banking and finance. Allah Subhanahu wa Ta’ala has reminded us of the disadvantages of practicing usury which does not promise any good or benefit as it is introduced by the capitalist thinkers.
The hardships incurred during the economic crisis occurred not only to those who allow usury, but also innocent people. This is explained in the Qur’an, Surah al-Anfal, verse 25 which means: “And guard yourselves against a temptation to evil (that will lead to calamity) which will afflict not only the wrongdoers among you alone (but which will fall on all of you in general)”. By putting good understanding, the economic crisis may have its own message in which Allah Subhanahu wa Ta’ala is testing, reprimanding, and commemorating the wrongdoing done so that people will follow the right path of Islam.
Societies in all around the world should learn from what has happened previously, as well as realize and believe that the warning of Allah Subhanahu wa Ta’ala is true and the practice of usury will definitely bring destruction to the nation’s economy. This has been warned by Allah Subhanahu wa Ta’ala in Surah al-Baqarah, verse 276 mentions: “Allah deprives (the accumulation of wealth through) usury of all blessings”.
The truth of this verse has been verified by the collapse of a number of giant financial institutions in the United States such as AIG, Lehman Brothers, and Merrill Lynch in 2008. The incident has critically affected the stock market around the world. Investors at the Wall Street Exchange have suffered huge losses as a result from the crisis.
As a result, the downfall of the iconic capitalism financial institutions in the United States has led to the distrust of the society on the ideological sustainability of the capitalist economic system and the conventional banking and finance system. Instead, this has made to ponder on the advantages of the Islamic banking and finance system which framework is formulated by the Fuqaha’ and Muslim financial and banking scholars, derived from the Qur’an, al-Sunnah, ijtihad, and other Islamic jurisprudence sources. This framework does not only make Islamic banking consistently stable, but also endure in challenging economic situations.
This can be proven, ending of the year 2009 financial crisis, as the report released by three international agencies; Islamic Financial Services Board (IFSB), Islamic Research and Training Institute (IRTI), and Islamic Development Bank (IDB) in April 2010, there was not even one Islamic banking institutions required financial assistance by the government with various forms of “bail-out” as compared to other conventional banks.
In other words, the global economic crisis can be considered as a blessing to Islamic banking institutions and has placed it as a focus and an important alternative to conventional banking. Its intrinsic strength was successfully highlighted by the crisis that had only limited and minimal impacts on Islamic banking institutions principled by non-usury, profit sharing, and sales at an additional price.
Future Prospects of Islamic Banking Institutions
Incident of recession and bankruptcy of global capitalist institutions should be used as a milestone to strengthen Islamic banking institutions. Islamic financial systems that are more towards risk sharing practices are able to protect its financial system from the global economic and financial crisis.
This is basically the best time for Islamic countries to strengthen their Islamic banking and financial structure and products as well as presenting them to the world as the ideal system to recover from global economic crisis.
Over the last few years, international financial centers have seen the introduction of Islamic financial systems, including operations in London, Singapore and Hong Kong. Among the major products produced from Islamic finance is Sukuk. The sukuk market has become an important channel for international fund raising and investment activities. The large potential of the sukuk market in the international financial system is indeed a new result of innovation in Islamic finance and is an integral part of the process of Islamic financial globalization.
With the occurrence of global economic and financial disasters, Muslims and especially the society generally become more mature and capable of making a comparison of which systems are better, more user-friendly, and promoting socio-economic justice. There are now many non-Muslim communities who have chosen the Islamic banking system in making transactions.
If Muslims themselves seek to develop and strengthen the Islamic banking system as the best alternative, surely non-Muslim communities will also choose the. This fact will not only highlight the good image of Islam as a religion that embraces all areas of human life but can further highlight the beauty of Islam as the best way of life.
What important is that Muslims need to strive to develop and support the Islamic financial and Islamic banking system seriously. Muslim scholars are encouraged to contribute ideas, strengths, and efforts. Similarly, Muslim-preneurs are obliged to choose the Islamic financial and banking system as the primary choice instead of alternative options. The government also plays an important role in providing infrastructure that ensures the sustainability of the Islamic banking and financial system making it comparable even better than conventional banking and finance systems. Additionally, laws and regulations that may be a barrier to the implementation of the Islamic financial and banking system need to be revamped and altered so that it is in line with the current needs of Islamic banking and finance. Furthermore, the Shariah financial standards should also be urgently enacted so that Islamic banking management reaches the level of international Islamic financial standards.
The author is dean at Faculty of Islamic Economics and Finance in Sultan Sharif Ali Islamic University, Brunei Darussalam.