Debt is debt, even if it’s Shariah-compliant

In a book aptly titled “This Time Is Different”, Rogoff and Reinhart, two prominent economists, show that every single financial crisis over the last 800 years has had a single root cause, excessive debt. It appears that what begins as borrowing for the funding of development infrastructure can, as it builds, lead to a spiralling of debt and financial crisis. There is a circular and reciprocal relationship between debt, leverage, vulnerability, and financial distress. This applies to all borrowers, governments, corporations, or other entities. Collectively known as the leverage effect, debt increases break-even points, requires obligatory cash outflows to service the debt and magnifies profits/losses. A leveraged entity is a riskier one, vulnerable to even small changes in e...