What does Islamic finance allow and forbid?
Transactions must be Halal (permissible), which precludes investments in certain industries (for example, gambling, alcohol, tobacco, pork, insurance and conventional banking). Shariah encourages earning of profit through trade and therefore prohibits any form of interest (Riba). Conventional deposits, loans, overdrafts or bonds are therefore forbidden. Speculative behaviour or undue uncertainty in a transaction is called Gharar and is forbidden by Shariah. Conditions in a contract should therefore not be subject to future uncertain events that could lead to misunderstandings. It is also not permissible to sell something that one does not already own. Activities such as short selling are therefore prohibited.
