Schumpeter’s creative destruction and the credit crunch of 2007–2008: an Islamic banking perspective

What is it about?

This paper examines financial products such as mortgage backed securities, credit default swaps, collateralised debt obligations which contributed to the Credit Crunch of 2007-2008. It then looks at comparable Islamic financial products to determine whether they result in the same level of systemic instability. The paper places its discussion within a Schumpeterian creative destruction framework, arguing that although Islamic banking principles reduce volatility and speculation, they also dampen innovation.

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