What we know about the Islamic Financial System Procyclicality

The long history of economic and financial crises shows that pro-cyclicality is an inherent feature of the real and financial sectors of an economy. The main feature of pro-cyclicality is an underestimation or overestimation of the risks to which the banking sector is exposed. The Islamic financial system, is also impacted by procyclicality feature. I chose the title; what we know about the Islamic financial system procyclicality; in order to awaken the academics and the researchers to not only focus on the green side of Islamic finance. We have to check theoretically and empirically the weaknesses and the pain of the Islamic financial system in order to complete the Islamic finance theory. This book suggests three Islamic versions of financial accelerator effect in three different markets, Partnership contract market, Sukuk Market and Organized Tawarruq market. The main pains are the forces that push the Islamic Financial System to be a shock amplifier rather than absorber.