Basic Principles of
Islamic Finance
Islamic finance is based on ethical and moral principles. It aims to promote
social justice and economic well-being.
Prohibition of Interest (Riba)
1 Charging Interest 2 Sharing Risk and Profit 3 Ethical Foundation
Interest, or usury, is forbidden in Instead of interest, Islamic finance This prohibition aligns with the
Islam. Lenders cannot charge focuses on risk and profit-sharing. Islamic principle of justice and
borrowers a fee for lending money. Lenders and borrowers share in the discourages exploitation and undue
outcomes of investments. gains.
Prohibition of Uncertainty
(Gharar)
Clear Contracts Avoidance of Speculation
Islamic finance emphasizes Transactions involving excessive
clarity and transparency in uncertainty or risk are prohibited,
contracts. All parties must have promoting a more responsible
a clear understanding of the approach to investments.
terms and obligations.
Risk Mitigation
This principle promotes stability and fair dealings by ensuring that
transactions are based on tangible assets and shared risks.
Prohibition of Speculation (Maysir)
Gambling and Fortune Ethical Finance Sustainable Growth
Gambling is prohibited in Islam as it Islamic finance prohibits investments This principle emphasizes real-world
involves earning money through pure based purely on speculative outcomes investments and sustainable economic
chance and luck. and encourages responsible risk development rather than risky ventures.
assessment.
Asset-Based Financing
Tangible Assets
Islamic finance emphasizes financing based on tangible
1
assets, such as real estate or commodities, rather than
abstract financial instruments.
Real-World Investments
2 This approach promotes investments in the real economy,
contributing to sustainable economic growth and development.
Risk Reduction
Asset-based financing helps reduce risk by grounding
3
investments in real value, ensuring a tangible basis for
repayment.
Profit and Loss Sharing
Partnership Shared Risk Fair Outcomes
Lenders and Both parties are This ensures a more
borrowers share exposed to the same equitable distribution
profits based on a risks and rewards. of profits and losses.
pre-agreed ratio.
Ethical Investing
Environmental Sustainability
Islamic finance encourages investments that promote environmental
protection and sustainable development.
Social Impact
Investments are aligned with ethical principles and social responsibility,
promoting positive impact on communities.
Transparency and Accountability
Ethical investing emphasizes transparency and accountability, ensuring that
investments are conducted with integrity.
Social Responsibility
Community Development 1
Islamic finance promotes investments that benefit
local communities and contribute to economic
development. 2 Poverty Alleviation
Investments in projects that address poverty and
provide essential services are encouraged.
Social Justice 3
Islamic finance emphasizes fair treatment and
equitable access to financial services.
Islamic Banking Products
Home Finance Investment Accounts Trade Finance
Islamic home financing follows the Islamic investment accounts offer a range Islamic trade finance facilitates
principles of profit and loss sharing, with of Sharia-compliant investment options international trade transactions in
no interest charged. for individuals and institutions. compliance with Islamic principles.
Conclusion and Key
Takeaways
Islamic finance is a dynamic and evolving system that offers a unique
approach to financial management, rooted in ethical values and principles. It
is a powerful tool for promoting sustainable development and fostering
economic well-being.
