Although the Islamic financial industry was relatively insulated from the first round effects of the crisis because it did not invest in “toxic” structured financial products, it has not been able to avoid the second round effects.
These have included sharply reduced liquidity in all markets, and the effect of the global economic downturn on the credit-worthiness of all borrowers, including those who are customers of Islamic financial institutions. The principles of sound finance – do not concentrate risk, do not rely on collateral with unrealistic valuations – apply equally to Islamic institutions as to conventional ones.