Islamic Finance Ethics Capable of Reining in Financial Crime, Experts Suggest
Financial crime has escalated in recent years, with illicit flows exploiting weaknesses in traditional banking models.
An opinion piece in Daily Sabah argues that Islamic finance ethics—rooted in prohibiting riba (interest), gharar (excessive uncertainty), and maysir (gambling)—offer a robust framework to deter these crimes.
By requiring all transactions to be asset-backed and fully documented, Islamic finance fosters transparency and traceability, reducing opportunities for money laundering.
Risk-sharing models replace fixed-interest lending, discouraging predatory debt and aligning lender and borrower incentives.
Furthermore, mandatory charitable giving through zakat channels funds toward social welfare, directly addressing inequality drivers behind financial misdemeanors.
The United Nations Office on Drugs and Crime estimates that 2–5% of global GDP—approximately USD 800 billion to USD 2 trillion—is laundered annually, highlighting the scale of the challenge.
High-profile cases underscore conventional banking’s vulnerabilities. In 2012, HSBC was fined USD 1.9 billion for facilitating drug cartel money laundering and sanctions violations. Danske Bank’s Estonian branch processed nearly €200 billion in suspicious transactions between 2007 and 2015, marking one of Europe’s largest laundering scandals.
Beyond illicit flows, interest-based debt burdens societies. Advanced-economy household debt has surged to 95% of GDP, amplifying financial fragility. During the 2008 U.S. subprime mortgage crisis, serious delinquency rates peaked at 11.5% in 2010, precipitating global economic turmoil.
By contrast, Islamic banks recorded a non-performing loan ratio of around 4% in the post-crisis period, compared to 7% for conventional peers, demonstrating greater resilience.
Islamic finance also outperformed many traditional institutions during the 2008 downturn, growing steadily while others retrenched.
Industry data show global Islamic finance assets reached USD 3.8 trillion in 2023, with Southeast Asia and the Middle East accounting for over 70% of market share.
As global policymakers seek robust safeguards, integrating Islamic ethical tenets—such as asset-backed mandates, risk-sharing windows or zakat-based social funds—could bolster anti–financial crime measures, promote equitable growth, and enhance market stability.
