Contemporary Problems of the Global Financial System. Can Islamic Finance help?

Instability of the Global financial system is the biggest challenge in contemporary Economic Management. Financial crises have not only become more frequent but deeper and much more costly. There appears to be an obvious disconnect between the Real and Financial sectors of the economy. Sustained looseness in monetary policy and an overdependence on monetary stimulus has seen a ballooning of debt without much traction in GDP growth. The world now appears to have worked itself into a corner. The world needs growth without debt, but conventional economics does not appear to have an answer. The risk sharing principles of Islamic finance could be a way out. The risk sharing contracts of Islamic Finance can change the debt-equity trade-off and offer a way to fund growth without leverage. The avoidance of debt minimises economic vulnerability and the potential for new crises.