The religion-based system's attitude to risk stands it in good stead compared to Western banks.
Islamic finance is set to be a big winner in the current financial crisis, BDO Stoy Hayward said today.
The financial advisor claimed that the religion-based system retains large amounts of money available to borrowers. This is in contrast to mainstream lenders, many of whom depend on inter-bank loans for revenue and have therefore been forced to make cutbacks due to the frozen money markets.
Invented in the mid-20th century by muslims looking for a system of finance that was in-keeping with the tenets of their religion, Islamic finance also has a radically different attitude to risk than other forms of banking.
Commonly, the system works on a "risk-sharing" model. For example, Islamic insurance works by policyholders paying into and claiming from a central pool, which is used by all - in contrast to the common Western model.
With usury from loans banned by Islam, the leverage - or, more simply, the amount of money owed - by Islamic financial institutions also tends to be lower.
Speaking to FT Advisor Dan Taylor, head of banking at BDO Stoy Hayward, explained: "As the risk profile of Islamic Banks is generally lower than conventional western banks, this presents a more solid option for both retail and institutional investors and suggests that dealings with Islamic financial institutions will grow dramatically as people switch to more secure products in this environment.
"Further growth of Islamic banking in the UK will also be attributed to their more conservative approach to financing, as the risks are shared with the investor…it is more difficult for Islamic financial institutions to use leverage; therefore their risk profile is naturally lower."
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