Islamic finance is a financial system that operates in accordance with the principles of Islamic law, or Shariah. The fundamental principle of Islamic finance is the prohibition of interest, known as “riba” in Arabic. Instead of charging interest, Islamic finance uses profit-sharing arrangements, leasing agreements, and other innovative structures to enable individuals and businesses to access funding while adhering to Islamic principles.
Another key feature of Islamic finance is the concept of risk-sharing. In Islamic finance, both the profits and losses of an investment are shared between the investor and the entrepreneur. This encourages prudent decision-making and risk management on the part of both parties and helps to promote stability in the financial system.
Islamic finance has grown significantly in recent years, with many countries and financial institutions around the world now offering Shariah-compliant financial products and services. These include Islamic banking, Islamic insurance (Takaful), Islamic investment funds (Sukuk), and other types of financial products that are designed to meet the needs of Muslims who want to engage in financial transactions that align with their religious beliefs.