Towards a Plural Financial System
Studies in Islamic Finance, Accounting and Governance series
Edited by Valentino Cattelan
Chapter 5: Financial stability and economic development: an Islamic perspective
The financial crises such as the global financial crisis of 2007–09 and its aftermath as well as the present sovereign debt crisis of Europe have adversely affected the economic conditions and the social fabric of many countries. The strong link between financial stability and economic development has been learned the hard way. The attention of economists and policy makers has therefore now been refocused on attaining financial stability and saving economies from going into prolonged depression. In this regard, Islamic economics and finance can offer help in devising new policies and providing a fresh perspective. This chapter provides an Islamic perspective on the design philosophy of a financial system that guarantees stability and comprehensive economic development. Specifically, we address the questions: (1) How should we define economic development? (2) How is the financial sector development linked to economic growth? (3) How does financial stability affect economic development? (4) How can Islamic finance help in stability and growth?
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