What is Islamic Finance?
It’s a way to manage money and do business that fits with the moral principles of Islam.
To be more precise, Islamic finance is a type of financing activities that must comply with Sharia (Islamic Law). The concept can also refer to the investments that are permissible under Sharia. (Islamic Law).
Therefore, we have sought to find a way for those who live by Islamic principles to join Islamic banking to help them trading in their own principles.
Examples of Islamic Finance and its way of working
Aside from the absence of interest rates, the key concept of Islamic finance is risk sharing between parties in all operations. Here are some of the key sharia-compliant products offered by banks — they have Arabic names but in most cases we can find an equivalent in conventional Western banking (Sairally, 2013).
Murabaha or cost plus selling: Instead of taking out an interest loan to buy something, the customer asks the bank to purchase an item and sell to him or her at a higher price on instalment.
Modaraba or profit share: An investment in which the bank provides 100% of the capital intended for the creation of a business.
Why is Islamic Finance gaining importance
Islamic Finance is large enough to affect the quality of some countries’ national accounts, monetary and financial statistics, and indicators of the structure.
Banking or banking activity that complies with sharia (Islamic law) — known as Islamic banking and finance, or shariah-compliant finance — has its own products, services and contracts that differ from conventional banking. For this reason, as part of an ongoing effort to help those in need, we created the new Qintar Crosschain Decentralized Finance ecosystem that includes 3 Islamic finance tools: Murabaha, Modaraba, and Peer to Peer Lending.
Islamic Finance Rules
Sharia prohibits riba, or usury, defined as interest paid on all loans of money (although some Muslims dispute whether there is a consensus that interest is equivalent to riba). Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam (“sinful and prohibited”). Paying or charging interest is prohibited and not acceptable.
- Sairally, B., S. (2013). Evaluating the corporate social performance of Islamic financial institutions: an empirical study. International Journal of Islamic and Middle Eastern Finance and Management. DOI: https://doi.org/10.1108/IMEFM-02-2013-0026