Islamic insurance is credit crunch-proof

by David Masters

Story link: Islamic insurance is credit crunch-proof

Islamic financial services and insurance firms will remain strong through the global economic crisis because Shariah law prohibits interest-based financial products, Standard & Poor’s (S&P) said this week.

Gulf-based Islamic financial institutions didn’t invest in the toxic debt and structured products that have wiped billions off the balance sheet of western companies.

Takaful, a form of Islamic insurance, is resilient to worsening credit markets because Takaful companies have sufficient liquidity and capital, S&P said.

S&P credit analyst Mohamed Damak said: “Most IFIs (Islamic financial institutions) should be equipped to weather the financial downturn and keep the effects on their financial profiles at manageable levels.”

Despite S&P’s optimism, IFIs are being squeezed by market conditions as the price of real estate drops across the Middle East.