Islamic Finance: Difference between revisions

Islamic scripture and jurisprudence address and prescribe various financial practices, outlined here.

Haram (prohibited) institutions

Illegal trades

Alcohol, pork and gambling are agreed upon to be forbidden under Islamic law, and Islamic financial institutions avoid investing in such activites. Similarly prohibited is the charging and collecting of interest.

Interest-based practices

Of the economic practices prohibited by Islamic law, the prohibition on interest is the most consequential, since all banking, financing, and investing in the world economy depends on interest.

Islam traditionally prohibited interest, as Muhammad feared usury leading to debt slavery and other undesired social problems. Modern laws increasingly prohibit and secure against debt slavery while preserving the collecting of interest.

Nevertheless, interest remains forbidden in many Islamic countries.

Halal alternative institutions

Islamic banks exist in many Muslim (and Western) countries. These offer savings accounts which return a share of invested profits instead of interest.

Alternatives to mortgages are offered, in which the property is owned jointly with a bank, in what is called a musharaka (partnership) contract. The applicant gradually repays the bank for its share of the property and pays fees in the meantime. Business loans can also take the form of musharaka contracts, in which the bank does not charge interest but gets shares in the business.

References

Further readings

• Iran's Economic Morass: Mismanagement and Decline Under the Islamic Republic, ISBN 978-0944029671