Islamic Finance and the New Financial System: An Ethical Approach to Preventing Future Financial Crises

Introduction

Monday morning, September 15, 2008, I was sitting in my office settling into my daily routine when I heard a lively discussion among my colleagues who were gathered in our reception area. It was not uncommon for them to gather there and chat, since it was the only open space other than the meeting room where we could all talk. It was also where we had a flat-screen TV mounted on the wall blaring CNBC all day. I never paid much attention to it.

That morning, the chatter was different. I got up from my office to see what the day's topic was. What I saw was my colleagues staring at the TV in disbelief. “Tariq, get over here and check this out,” said one of them. “We're screwed,” said another.

In 2004, I had left my vice president's job at HSBC Bank in New York to join a start-up private equity shop in Chicago. The new firm was to be the U.S. investment arm of a Bahrain-based Islamic investment bank. The bank was also new, having been set up less than a year earlier. I was hired early on to help set up the U.S. operation and build the investment team. Management and shareholders of the bank believed that to be a world-class bank, as they strived to be, they must build up an investment capability in the United States. It was determined that private equity (PE) was the expertise they needed to develop, as they already had a good amount of expertise in real estate, which is a traditional favorite asset class among Middle East investors.

Since the dot-com bust in 2000, private ...