Resilience of Islamic Finance During the Credit Crunch – Empirical Evidence from the European Market

Islamic Finance is based on the Islamic Jurisprudence as prescribed by the Shariah, and has witnessed significant growth and development in the recent decades. During the period of economic slowdown and following Financial Crisis during FY 2007-2009, it was claimed that this financial system seemed to be better in coping with such economic slowdowns. The paper analyses whether the same holds true for Shariah compliant equities in the market i.e. whether Shariah compliant equities perform better in the market as compared to general market. Three portfolios are constructed based on the constituents of S&P Europe 350 to represent overall market, the market without the financial firms and the market of Shariah compliant equities. It is found that the portfolio of Shariah Compliant equities outperforms the other two portfolios in all aspects of analysis. However it slightly underperforms the market portfolio when there is upward growth trend in the economy. The findings of this paper is ver