What is Islamic Finance?In what ways is it different from conventional banking?
Islamic finance, while following the basic parameters of conventional finance, has an added mandate of Shariah compliance, which originates from the Qu’ran. Shari’ah has laid down rules for the socio-economic life of people. Islam aims to minimize the social differences between all sections of society and make all Muslims live together in peace and harmony. The main differences between Islamic finance and conventional banking are that interest or Riba cannot be charged, and any financial transactions that involve Riba are expressly prohibited.Islamic finance is therefore asset based as opposed to being currency based. People are forbidden from lending money to gain profit, without accepting an element of risk in the transaction.Wealth can only be gained through Shari’ah compliant trading or investment, and any gains made should be shared between the parties concerned.
