Islamic finance: between money and Shari’a

Islamic finance: between money and Shari’a

When we talk about finance, very often we refer to the so-called classical (or if you prefer, Western). Finance based on the concept of interest and the freedom to invest in any type of asset. However, not everyone knows that there is also a branch of finance. That is characterized by operating rules and peculiar principles: we are talking about Islamic finance. Islamic finance, as the name itself suggests, is based on the dictates of the Muslim religion. In particular on the Shari’a and consists of a way of managing money that must comply with the principles of the Islamic religion. We will therefore have that operations such as saving. Investing or simply borrowing money to buy a house will respond to very specific rules.

The founding principle on which Islamic finance

The belief that money does not in itself have an intrinsic value. But is simply a way to exchange goods that instead have an intrinsic value. If money has no value, it follows that it is not capable of producing other money, and therefore ultimately interest. One of the main characteristics of Islamic finance is Algeria WhatsApp Number List therefore the absence of an interest rate in many financial transactions. Its possible perception or payment is strictly prohibited and considered as usury. Another important principle that governs. Islamic finance concerns the fact that money and its investment must not result in something dangerous for the health of human beings. To this end, Islamic finance stipulates that investing money in the tobacco industry. In the production of alcohol or to finance the gambling industry is strictly prohibited.

In addition to these sectors

investment in pig farms is also prohibited, since the Muslim religion does not provide for the consumption of this food. Just as all speculative investments are prohibited, i.e. those where the possession or otherwise of an asset depends on from the future realization of an uncertain event. It follows that the use of Brazil WhatsApp Number List derivative contracts which usually involve a certain level of risk and the practice of short-selling are strictly prohibited for Islamic financial institutions. But if interest is prohibited in many financial transactions. How are money lenders, such as banks. Who finance businesses or private citizens remunerated? In the case of a loan made by the bank to a company, the remuneration of the borrowed capital can take place through a participation in the profits produced by the latter, according to what is commonly called the equity participation system.