Islamic Banks Unhurt By Toxic Assets, But Could Suffer As Crisis Evolves: rferl

By Ron Synovitz

Political and business leaders at the World Islamic Economic Forum in Jakarta this week have been praising the prudence of Islamic financial institutions.

They say Islamic banks have not been hit by the global financial crisis as hard as their Western counterparts because they refrained from investing in toxic assets that were deemed "un-Islamic."

Indonesian President Susilo Bambang Yudhoyono says the financial crisis has proved the strength of Islamic methods of banking and finance. He says Western bankers have a lot to learn from Islamic finance, and he is calling on Islamic banks to take more of a leadership role in the global economy.

The focus on the Koran's prohibitions arguably make it difficult for Islamic financial institutions to work in the same way as a conventional Western bank.

For example, Islamic law prohibits investment in businesses that sell alcohol or pork, or that are involved in gambling. That means an Islamic banker must ensure clients that their deposits are not being reinvested in a firm that does business deemed as "un-Islamic."

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