Sharia-compliant investments were considered free from excessive speculation, backed by physical assets and shielded from direct exposure to what we have come to know as toxic assets. Overarching principles of risk-sharing and profit-sharing provided a mechanism to bolster confidence in Islamic finance as a viable alternative to conventional financial services.
However, as the financial crisis wore on, Islamic finance demonstrated that sharia principles alone could not guarantee immunity from asymmetric economic shocks within an integrated global financial community. Compared with conventional banking, the sharia-compliant investment industry has demonstrated resilience to rapid changes in the economic landscape, but has proved to be far from risk-free.
