Trading Debts Arising from Financial Intermediation Analytical Shariah Study in the Light of Financial Crises


April 2, 2019
Trading Debts Arising from Financial Intermediation Analytical Shariah Study in the Light of Financial Crises
Abdulazeem Abozaid

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Issue

Debt creation is one of the most serious problems faced by modern economies. It occurs through financial institutions using the huge funds they have mostly from depositors to create debt through providing financing to clients. Then comes the issue of selling the debt resulting from the financial intermediation to exacerbate the risk further. The totality of these two things, excessive creation of debt and then selling it, is one of the most important causes of financial crises, and the recent global financial crisis in 2008, is the best witness to this fact. Huge amount of real estate debt was created by means of home financing in the United States, securitized and then sold locally and abroad. Debtors defaulted and consequently collateral damage occurred affecting debts owners, debt insurance companies and banks all over the world. Although Islam, in principle, does not oppose to the issue of financial intermediation, since selling at a deferred price may involve financial intermediation, like in the banking Murabaha, Islam however prohibits the trade of debt arising from this mediation; and this is one of the elements to assert the immunization of Islamic economy from the crises. The research comes to investigate this issue and criticize the contemporary interpretations that justify the sale of debt by various means, since such interpretations deprive Islamic finance of its major element of immunity against financial crises. Keywords: sale of debt, the financial crisis, subprime mortgage, commercial debts

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