The Root Causes of Financial Crisis in Islamic Economic Perspective

The ongoing global financial crisis is just a repeat of financial crises which have occurred one after another since the England crisis in 1825. The crises have subsided in the period under Bretton Woods Agreements (BWA) in 1950-1972, with the implementation of gold standard. The crises have reemerged with the collapse of BWA in 1971, and up to 2011 there are 421 financial crises covering 147 banking crises, 218 currency crises (10 episodes in 2008-2011), and 66 sovereign debt crisis, including 68 twin crises and 8 triplet crises These repeated man-made financial crises happened due to the transgressions of God's laws in financial dealings, especially in the abandonment of main pillars of Islamic financial system, namely prohibition of rib (usury or interest), prohibition of maysir (game of chance or speculation) and prohibition of gharar (excessive uncertainty), in their many forms, as well as due to misbehaviors of economic actors, poor governance and unsustainable fiscal system. This study will apply Analytic Network Process (ANP) to determine the main root causes of financial crisis from Islamic economic perspective which will be grouped into five clusters, namely: Misbehavior, External Factor, Poor Governance, Unstable Monetary System and Unsustainable Fiscal System. Each cluster will have six relevant elements obtained from literatures and in-depth interviews with several experts.