Sai.m Essay Example | Topics and Well Written Essays - 3500 words

Sai.m - Essay Exampleh crises moreover, the fact that the effects of recession on markets that are based on Muslim banking has been limited proves the effectiveness of Islamic banking scheme towards its western rival. Current study focuses on the examination of the solutions that Islamic banking so-and-so offer regarding the limitation of losses caused because of the credit crunch.In order to understand the potential solutions of Islamic banking against the credit crunch it would be necessary to refer in the first place to the characteristics and the framework of Islamic banking as an alternative scheme of banking compared to the traditional (western) banking system. In accordance with Iqbal et al. (1987, p.29) the central requirement of an Islamic financial system is the replacement of the array of interest with the rate of return on real activities as a mechanism for allocating financial resources. On the other hand, Saeed (1996) nones that the investment activities of the Isla mic bank would be based on the two legal concepts of Mudaraba and Musharaka, alternatively known as profit and loss sharing (PLS) (Saeed, 1996, p.51) in other words, the existing principles and mechanisms of Islamic banking put forward be used in order to control the pressure of the global market which is based on the western banking system in this case, an inhibit customization of the rules of Islamic banking system would be required in order to suit to the needs and the potentials of customers worldwide (Scharf, 1983, p.18).On the other hand, Islamic banking system has an important weakness the lack of an appropriate regulatory framework this means that in case of failure the allocation of risk among the persons that participated in a specific investment initiative may not easy furthermore, the recovery of damages would also face difficulties (Ledgerwood, 1999, p.56). The above problem is examined in the study of Venardos (2005) in the specific study it is noted that an appropr iate regulatory