Key Principles of Islamic Finance
Principles and Philosophy:
Operates based on Islamic principles (Shariah), which prohibits the payment or receipt of interest (riba). Transactions must be based on profit-and-loss sharing arrangements, and investments should be made in a manner consistent with Islamic ethics.Interest (Riba):
Prohibits the payment or receipt of interest. Instead, Islamic financial institutions engage in profit-and-loss sharing mechanisms, such as Mudarabah and Musharakah, where profits and losses are shared between the institution and the customer.
Risk and Reward Sharing:
Emphasizes risk-sharing and operates on the principle that both profits and losses should be shared between the institution and the customer.
Product Offerings:
Offers Shariah-compliant products such as, Murabaha (selling), Musharakah (partnership), Ijarah (leasing), and Sukuk (Islamic bonds).
Regulatory Framework:
Operates within a regulatory framework that ensures compliance with Shariah principles. Moreover, Islamic financial institutions have specialized boards of Shariah scholars or Shari’a Supervisory Committee to provide guidance and Fatwa.
