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Islamic Finance: Principles and Practices
Islamic Finance is a system of financial intermediation and business activity that operates in strict compliance with Sharia (Islamic Law). It provides financial services—including banking, insurance, and investments—by adhering to religious principles that prioritize justice, ethical conduct, and shared risk.
Its core difference from conventional finance is the prohibition of interest-based transactions, replacing them with asset-backed contracts based on trade, partnership, and leasing.
Core Prohibitions (The Fundamental Principles)
Islamic finance is distinguished by three key prohibitions that guide all financial contracts:
Riba (Interest or Usury): The charging or payment of interest is strictly forbidden. Riba refers to any predetermined, fixed return or unjustified increase in a loan principal, as Sharia views money as a medium of exchange, not a commodity to be sold for a profit. Profit must be earned from a real economic activity linked to assets, trade, or risk-sharing.
