The main principles of Islamic finance

A little known sector of global finance until recently, Islamic finance has been growing rapidly for several years and in 2015 accounted for nearly USD 1,700 billion in global assets; it could increase to around USD 2,900 billion by 2021.

The word Islamic banking covers all financial products and transactions that conform to the principles of Koranic law, which include the ban on interest, uncertainty and gambling, the ban on investing in sectors considered illegal (alcohol, tobacco, gambling, etc.), and the respect of the principle of profit and loss sharing.

Fiscal arrangements

The main tools of Islamic finance are the murabaha and sukuks.

Murabaha is a sale contract whereby a seller sells an asset to an Islamic financier who sells it to an investor for a price payable in the future (instalment sale).
Sukuk and similar financial products are securities that represent a debt security or loan to the holder, the remuneration and principal of which are indexed to the performance of one or more assets by the issuer. These assets are allocated to the payment of the remuneration and the repayment of the sukuk or similar products.

What's your reaction?
Leave a Comment