Explanation of Shariah Finance

What is Islamic Finance?

While the absence of “Riba,” or all types of interest, is an important feature of the Islamic financial system, Islamic banking incorporates much more.

The heart of Islam is a spirit of cooperation, of supporting one another in accordance with moral and religious ideals. It aims to prevent exploitation and build a just society by applying Shari’ah or Islamic principles to the running of banks and other financial organizations.

To ensure Shari’ah conformity, Islamic banks use the help of religious boards made up of Shari’ah academics.

Unless they are not interest-free, Islamic money may be seen as a kind of ethical investment or moral loans. Ethical restrictions include the prohibition of alcohol, gambling, and swine.

Their practitioners and customers do not have to be Muslims but have to accept an ethical restriction on Islamic standards.

What is Islamic Banking?

Islamic banking is a banking system or activity that follows Shari’ah (Islamic law) principles and puts them into practice through the development of Islamic economics. Moral and ethical standards in all relationships are ideals that appeal to a wide spectrum of people.

Shari’ah forbids the payment or acceptance of interest charges (riba) for the loan and accepting of money, as well as trade and other activities that provide goods or services that are regarded contrary to Shari’ah principles.

Although these ideas have been employed as the basis of a successful economy in the past, certain Muslim banks were formed only at the end of the 20th century to provide Muslims with an alternative basis, even if the Islamic banking system is not confined to Muslims.

Shariah Equity Funds

A Shariah equity fund is an investment fund that follows Shariah law and the teachings of the Islamic religion. Socially responsible investing takes the form of Shariah-compliant mutual funds.

One of the various socially responsible investment categories is shariah-compliant funds. Just as other ESG funds, the funds examine potential portfolio investments according to specific requirements demanded by the followers of Islamic religion.

Concepts and Understanding

Economic concepts based on Islam provide a middle ground between extreme capitalism and communism.

It gives the individual the freedom to work and build riches while surrounding them in an atmosphere governed by Divine Guidance, which establishes moral laws and norms of behavior that must be followed with the utmost sincerity.

When people internalize and act on these rules and norms, the broader society benefits from peace and prosperity.

This is not a philosophical concept, taken from society’s daily life. It is manifested in every element of life. Which is the greatest way to do your job is by a trader, banker, farmer or research and development scientist? It is the concept of rivalry in capitalist economies.

This includes the need to produce more constantly to make a profit, thereby wasting and frequently generating unbreakable greed.

However, the idea of a person representing God on earth in an economy founded on Islamic principles provides businessmen a sense that they cooperate with others, including ourselves, for the well-being of the entire society.

Rules in the Market

Coercion, gambling, and usurious and harmful deals are all prohibited in Islam, as are dishonesty, fraud, and deception. Hoarding, speculating, and producer-merchant collusion against consumer interests, as well as monopolies that impair society’s socioeconomic well-being, are all outlawed. The basic principles that regulate market operations in an Islamic state are as follows:

  1. a) A person should be free to acquire, sell, and dispose of his or her belongings and money within the Shari’ah. A financial investment is Halal only if fulfills Shariah.

(b) The trader’s profit percent is not limited. It’s up to him and the nature of the items. That’s up to him. But moderation, satisfaction, and leniency must be taken into account.

  1. c) The Shari’ah emphasizes that criminal activity should be avoided in order to harm society or individuals.

(d) The State may not impose pricing unless an excessive price increase, drop or fraud is caused by artificial variables in the market. If such factors exist, the State should interfere.


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By Alex D