What is Islamic Finance all about?

02 July 2020

For many people the fundamentals and workings of Islamic Finance is either unknown, intriguing or perhaps even misunderstood. This is the case in many Muslim majority countries where Islamic finance is flourishing and emerging. Australia is no exception. Insha Allah over the next few months I want to present a series of lectures/webinars where I hope to deal with this subject and much more that’s happening in the world of Islamic Finance.

I will commence the series by addressing the question:

What is meant by Islamic finance all about?

Put simply, it is the application of faith-based norms and principles derived from shariah dealing with financial transactions and trade practices. It relies on rules and injunctions developed from Islamic jurisprudence. They deal with the lawful and the prohibited (and their tolerance limits), ethical conduct, contracts and obligations. 

The term ‘Islamic Banking’ is a constituent of ‘Islamic Finance’ and refers to the set of banking and financial rules and practices organized on a basis that excludes interest as a determinant in financial lending and borrowing transactions. The conceptual basis of interest-free banking is to be found in Islamic tenets or Shari’ah. The latter encourages the practice of ‘Profit/Loss Sharing’ (PLS) as opposed to interest (riba). In the context of Islamic finance, the ‘Islamic Bank’ has become the third limb or intermediary between the users and providers of capital.