What is Islamic Finance?
Islamic finance is an alternative financial system based on Islamic law, more commonly referred to as Shariah.
The doctrine governs how money can be raised, invested, lent, and borrowed, with real economic activity at the heart of all dealings, alongside ethical conduct and fairness.
The key principles are:
• Prohibition of Riba or interest: Money cannot generate a guaranteed return only because it was lent out to a party that needed it.
• Avoidance of excessive gharar (uncertainty): Contracts and transactions should be sufficiently clear and transparent.
• Prohibition of maysir (gambling): Transactions based primarily on gambling or chance are prohibited.
• Shariah-compliant investments: Financing and investment should avoid prohibited sectors and activities.
• Asset or transaction backing: Islamic financial structures are based on an underlying asset, trade or business activity.
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