Part II FYI/FYA The Reason Islamic Finance Standing For

Welcome back. I may say economies collapse because of debt, wars were raged because of debt, and catastrophes happened because of debt, but on the other hand the economy cannot function without debt. So we have two kinds of debt, good debt and bad debt. So the question is where to draw the line? When to know that this is good debt? When to know that this is bad debt? Islamic finance provides us with a principle that helps us to find or to draw the line. So debt would be good if it is used to finance real economic activities.

As long as debt creation and wealth creation are synchronized and going hand in hand this will be...in principle at least...good debt. Once debt diverges from wealth creation, once it starts on it's own, once it starts self replicating then we know that we are in the dangerous zone.

So let me summarize this overview of Islamic Finance. Islamic Finance, first of all, it's universal in nature. It's a moral system of finance. The basic moral principles behind it are shared with major faiths across the globe. It emphasizes the balance between market and non-market activities, it integrates finance with real economic activities to achieve sustainable wealth creation. It tells us where to draw the line between good debt and bad debt, it puts finance in its proper position. Everybody agrees that finance is a means to facilitate trade and production. This is something

unanimously accepted among economists.

So the question is, how to keep finance truly within its limits and truly to function or to serve its own function properly? In reality, finance is not always a means. We have seen in the crisis how finance

became an end of itself. And many commenters and many economists and analysts and officials realized that finance became an end of itself rather than a means to facilitate trade and production. So to keep finance within its own boundaries, we have to be sure that finance is integrated with real economic activities. And that's what Islamic finance is all about.

Thank you very much.

reference: Islamic Banking and Finance Online Course