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The effect of financial crisis on Islamic banking Compared with non-Islamic banking in Gulf council countries (GCC) - Essay Example
This paper delves into the effects of financial crisis on Islamic banking compared with conventional banking in the gulf council countries (GCC). It is noted that Islamic banks performs better during financial crisis than their conventional counterparts, largely because of shariah law…
Some specialists have argued that the Islamic banks were less affected by the financial crises because of their risk-sharing and asset-based nature as well as the fact that they do not deal with the kind of assets associated with most of the losses that non-Islamic banks suffer during financial crises. Still another section of experts argue that the Islamic Banks, just like the non-Islamic banks, have depended on leverage and have taken on considerable amounts of risks that expose them to the second phase impact of the global financial crises (Čihák & Hesse, 2008).
By and large, Islamic Banks suffered less risk compared to non-Islamic banks during the 2008 financial crisis, especially considering that the non-Islamic banks suffered the largest losses in Europe and the US. A close study on 2008 financial crises shows that Islamic Banks did better, in terms of profitability, than the non-Islamic banks. This situation, however, retracted in 2009 as the impact of the crises became more real. Islamic Banks from GCC continuously showed a growth in assets and credit that surpassed the non-Islamic banks in all countries, apart from UAE.