ISLAMIC FINANCE

What is Islamic finance?

• Islamic finance refers to the means by which coroporations in the muslim
world, including banks and other lending institutions, raise capital in
accordance with sharia, or Islamic law.
• It also refers to the types of investments that are permissible under this
form of law.
What is Sharia board?
To ensure that all Islamic finance products and services offered follow
principles of sharia rules, there is a board called sharia board which oversees
and reviews all new product offered by financial institutions.
What are the key principles of Islamic finance?
• Avoidance of interest (RIBA)
• Avoidance of speculation (Gharar)
• Profit & risk sharing
• Prohibition of forbidden goods
What is RIBA?
• In Islamic finance, the meaning of RIBA is interest or usury
• Money is considered as medium of exchange only.
• Hence Riba is considered “HARAM” (unfair reward to the provider of
capital for little or no effort of risk undertaken)
• Due to this reason, Islamic finance models are based on risks and
profits/loss sharing contract
What are Differences between Islamic finance and conventional finance?
 • Islamic finance must not involve any forbidden goods, whereas
conventional finance can.

What are popular Islamic finance products?

• Mudaraba
• Musharaka
• Sukuk
• Ijarah
• Murabaha
• Istisna
• Salam

1) Mudaraba:-

Money supplier ……Rab-al-mal(capital owner)

Labour provider……Mudarib
2) Musharaka:-

3) Sukuk:-

4) Ijarah:-
How does ijarah contract work?

At the end of lease period, customer buys the asset from owner/bank through
a separate agreement.
Salient features:-

5) Murabaha:-

Murabaha is not an interest bearing loan, but a contract where, financial

institutions buys and resells the product with a mark up to the client.
6) Istisna:-

7) Salam:-