Boom and Bust Cycles of the World's Financial System and Islamic Modes of Finance as a Sustainable Alternative

The conventional financial system is based on credit financing. Banks advance loans to borrowers, charging interest thereupon and passing a portion to depositors/investors. Over the centuries, the world has been experiencing financial up and down cycles after every few decades. Global Financial Crisis of 2008 was the latest among all. The common thing in all these crises was the massive capital infusion of public into irrational speculative investments. On the contrary, Islamic financial system functions wholly on equity-based financing. Instead of offering credit, they offer to invest in assets either together with clients or exclusively. In former, both become partners whereas in the latter, bank becomes buyer by advancing finance and client becomes a seller. In this article an attempt would be made to analyse key actors of the financial crises and their aftermath on the World’s financial system and to explore Islamic modes of financing as a sustainable alternative.