FINANCIAL TIMES: Islamic Finance is a method of financing and banking operations that abides by Sharia Law. With the help of Bank of London and Middle East we outline the rules that all sharia-compliant financial products have to adhere to.
What are the main rules for Islamic finance?
Bank of London and the Middle East (BLME), a Sharia compliant bank, says the main principles of Islamic Finance is the avoidance of all haram (harmful) activities such as charging interest. In addition to the prohibition on charging interest, Islamic financial institutions must ensure that ambiguity (gharar) or gambling/speculation (maysair) is minimised in transactions and contracts. Complying with Sharia law also means that Islamic Financial Institutions are not permitted to invest in alcohol, pork, pornography or gambling.
How does Islamic finance work?
The overarching principle of Islamic finance is that all forms of interest are forbidden.
The Islamic financial model works on the basis of risk sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits between them.
The main categories within Islamic finance are: Ijara, Ijara-wa-iqtina, Mudaraba, Murabaha and Musharaka. >>> Lucy Warwick-Ching | Wednesday, July 14, 2010
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