The global financial crisis is a situation that is emerged as a result of the global economic downturn, which led to a financial crisis that resulted in a decline in GDP, weakness in financial liquidity, a noticeable increase in prices, and the emergence of clear inflation or deflation in the economic sector.

The global economic crisis is defined as a period of time in which the economy is witnessing decrease in the rate of productivity and the value of financial institutions; As a result of unexamined financial loans.

The causes of the global economic crisis

The global economic crisis occurred for several reasons, and the following is a set of these reasons.

according to both the global economy and the Islamic economy:

Causes of the economic crisis according to the global economy.

Inflation caused by the capitalist system:

It is the inflation that occurred due to global capitalist developments, and the impact of globalization on liberalism in general, and financial globalization in particular. Capitalism is defined as an economic system that relies on private ownership of productive factors, such as the capital that is used to obtain revenues and profits.

Mortgage fraud:

Loans are one of the main causes of the global economic crisis; This is due to fraud by commercial banks specializing in real estate loans; This led to the exploitation of real estate brokers; Because of the low interest rate, and encourage individuals who do not meet the conditions to borrow to buy real estate.

Large-scale marketing of financial derivatives:
It is one of the reasons associated with the interest of banking institutions, investment funds, and insurance companies in marketing derivative securities to investors; This increased the debts incurred by these institutions towards their investors.

Absence of effective supervision by the Securities Commission:
It is one of the direct causes of the global economic crisis; The Securities Commission was not concerned with monitoring the securitization processes of real estate loans; to assess the risks involved; This led to the extension of the problem of real estate loans.

Causes of the economic crisis according to Islamic economics

Islamic economics was concerned with following up on the global economic crisis; To formulate a set of reasons that led to its occurrence:
Mortgage:
It is the main cause of the global economic crisis; Because of the abuses that have arisen from this type of financial transaction, the mortgage is defined as a contract between a property owner, a buyer and financed by banks or financial institutions, and the buyer is required to pay part of the property price, and then the financier pays the remaining part that becomes a loan to the buyer With financial interest,

the banks neglected the importance of checking the credit status of loan holders (buyers), and were keen to increase the granting of loans; This raised the demand for real estate and its prices fell, and the banks also sold these loans to the companies responsible for securitizing for public subscription in the form of bonds, and this resulted in the emergence of a group of debts, resulting from mortgages, with borrowers stopped paying the debts after the interest value rose.

Spread of usury(Riba):
It is one of the forbidden financial transactions in Islam, and it includes all loans that are granted to individuals or establishments at a financial interest rate, and usury in language denotes the increase. jurists); It is inferred that it is forbidden in the Noble Qur’an by the words of God Almighty:

“(Allah destroys usury and increases charity; and Allah does not like any ungrateful, excessive sinner)”(Quran: 2:276).

As for the honorable Sunnah of the Prophet, it was mentioned in a hadith on the authority of Jabir bin Abdullah – may God be pleased with them – the Messenger of God – may God’s prayers and peace be upon him – said:
“Allah’s Messenger (ﷺ) cursed the one who accepts usury, the one who gives it, the one who records it and the two witnesses to it, saying, “They are all the same”.

Relying on Derivative Securities:
It is a financial agreement that includes the application of the sale or purchase of something; Depending on a fixed price, these securities are often derived from major assets, and are traded separately from derivative securities, but these securities may be derived from fictitious assets that do not constitute any ownership of one of the parties to the contracts, and depend on the existence of future promises to sell or buy.

Dealing with this type of financial derivatives increased within the markets, which led to the emergence of market fluctuations that contributed to making it one of the most important causes of the global economic crisis.

Islam has prohibited this type of derivatives based on fictitious transactions; Because it is considered a form of gambling (gambling) that is prohibited by Sharia, and this is indicated by the Almighty’s words:

English – Sahih International The Opening
“O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.
Surah Al-Maidah Full” (Quran, Alma’idah: 90).

Securitization:
It is a type of financial instrument that converts loans into securities that can be traded in the financial market, or in another sense is the transfer of debts (loans) from the main lender to other lenders,

and this process is also called securitization; Because it converts debts into bonds (sukuk), which are offered to the public within the public subscription, and then the similar ones are collected within one investment portfolio; to sell it to a new financier.

The Islamic solution to the global economic crisis
Adopting an Islamic solution in the face of the global economic crisis is one of the means that contribute to reaching a radical end to this crisis.

Therefore, the application of Islamic legal provisions within the economic system contributes to the treatment of this crisis, and the Islamic solution based on the legal provisions is summarized in the following points:

Islam sees the need to treat crises resulting from the capitalist economic system; Because it is the main and original problem of the emergence of the global economic crisis.

Islam imposes a cover on the money in circulation; By relying on silver and gold, taking care not to confine the money to a specific group of individuals, but rather it must be circulated among people until it reaches everyone.

Islam relies on the use of a specific form of financial participation; It includes negotiation and speculation, which prevents the spread of ignorance among partners in institutions and companies.

Islam prohibits usury and prohibits monopoly, and ensures that all those who deal with it are subject to the control of state institutions.

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Author: Alaaeldin Mohamed Omer