Toward reforming the finance sector

Abstract

We’ve seen in the last few chapters what was the original function of Financial intermediation and its institutions, and we have also studied how banks and other Financial institutions found the trading book activities more lucrative than the banking book, and therefore they indulged in market activities; in securitizing debts and buying and selling debts securities. In the previous chapters, we have also seen how the Financial sector evolved into a process of fınancialization. The current structure of the Financial sector, which has been detached from the real sector, constantly produces crises. It is now inevitable that the current Financial structure is reformed together with its institutions and tools. This chapter attempts to describe how to implement these reforms in terms of its Instruments and institutions within the context of regulations based on reconnecting finance again to the real sector. The chapter has six sections starting with an introduction as the First section. In the second section, the effects of Fınancialization, mainly in the US economy, have been described using its share in the GDP and its effects on the world economy. In the third section, after explaining how finance is defıned in its current and contemporaıy form, we tried to emphasize the role of finance throughout history and its structure serving the real sector in its simplest and original form. The fourth section is about what needs to be done to reform the current Financial structure within the framework of the principles of Islamic finance. In the fîfth section, the practical implementation of the three principles of Islamic finance has been described in detail. Section six discusses how the global Financial crisis could be prevented iF Islamic finance principles were applied to the finance sector.