This contrasts with conventional banks with their extensive loan books, overdraft and credit card facilities which provide steady revenue to cover their overheads even in today’s challenging markets. The “cloning” of business models leads to financial institutions becoming exposed to the same economic and industrial sectors.
The Islamic banking sector as a whole is highly exposed to the property sector – real estate, commercial property and construction – and as events in the advanced markets have recently reminded us, this sector can and does experience significant cycles of activity. The asset-based business models favoured by many Islamic banks have not been tested in a downturn.