Islamic Responses to the Financial and Economic Crises

Abstract

An economic crisis is the flip side of a financial crisis. A financial crisis, whether on a personal, national or international level, takes place when economic activity - the source of income - slows down or stops. Economic activity generates income. When production slows down income paid for the use of the factors of production also falls. As the gross domestic product declines so does national income. When there is a recession or a depression the economy needs to be revived - fast. An increase in efficiency or productivity contributes to higher profits, higher incomes, and a higher standard of living. Low productivity keeps income at low levels. When income increases without a proportionate increase in productivity, however, it is as if a car engine were running at a higher speed - but in the neutral gear. More income is being generated, but there is little corresponding increase in real wealth. Islam, in turn, appears to offer effective responses to a variety of crises - including financial and economic ones.