In the subject literature one will encounter the point of view that the recent global financial crisis marks the end of an era in contemporary Western finance. In searching for new ways of developing financial systems, the question can be asked: What can be learnt from Islamic finance? The aim of this article is to try to answer this question by examining the principles of Islamic finance and the construction of the Islamic financial system. We find that, despite existing similarities, the main difference between Islamic finance and the European and American financial systems is that the former is founded on the religious law of Sharia, while, the common standard of Western countries is to maintain separation between church and state. There are also differences in the perception of interest and risk, which make the Islamic financial system complementary to, rather than a substitute for, Western financial systems.
This study aims to conduct an empirical comparative analysis of the performance of Shari’ah and conventional stock indexes during the period 2017–2023, which includes the COVID-19 pandemic. Additionally, it aims to investigate investors’ preferences and analyse the long-term relationship of these indexes, as well as exploring the potential diversification benefits. The research methodology incorporates stochastic dominance analysis, the VARMAX procedure, and Johansen’s co-integration approach. The data utilized consists of 31 conventional and 31 Islamic stock indexes, specifically from the FTSE, DJ, MSCI, and S&P series. The results show that there are no long-term co-integration links between 30 out of 31 pairs of Islamic and conventional indexes. While conventional indexes tend to outperform Islamic indexes, they also come with a higher risk. On the other hand, Islamic indexes are considered to be less risky, offering potential diversification opportunities that may be attractive for global portfolios, particularly during periods of financial distress.
The article highlights the essential characteristics of the Islamic financial system, its main components and dimensions; identifies the latest trends in the development of Islamic finance in the transformation of the world economy. The peculiarities of the transformation of Islamic finances themselves are revealed. Changes in the distribution of participants in the financial market after Brexit and the impact of the effects of the COVID-19 pandemic on the viability of Islamic finance are outlined. The prospects of their implementation in Great Britain and "strategic centers – colonies" are proved. The preconditions for the formation of an alternative approach to solving the problems of the financial sphere in modern conditions are determined.
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