Islamic Finance and Financial Stability, in Theory and Practice

Financial stability is a precondition for sustainability of economic development, social progress and wellbeing. Due the global financial crisis and the perceived unique inherent features of Islamic finance, Islamic finance has big role in enhancing the stability of financial systems. This study explores the root causes of financial crisis from the theoretical perspective of Islamic banking and finance and analyzes the stability of Islamic banking and finance and its impacts on global financial stability through further review on various information from past researchers, reports from IMF, IFSB, IFIS and other resources and articles from internet and other sources. The study also examines the Islamic financial system from various perspectives and its contribution during the global financial crisis. According to the findings, the majority of studies showed that Islamic finance was resilient during the financial crisis whereas conventional finance was not effective in addressing economic crisis.