Islamic Finance: What's the fuss?

Islamic Finance is making headline news; from Boris Johnson to the Dubai royals, Islamic Finance is beginning to demand attention from businessmen, the banking sector and economic pundits all over.

But the question is WHY?

Islamic Finance is a relatively new concept to mainstream banking, despite its roots dating back 1400 years. But how do you go about understanding it? Well one way is to strip it to its bare essentials to understand the foundations on which Islamic Finance is based to make sense of the hubbub surrounding it.

The core values of Islamic Finance are:

•      The belief that humans are only the trustees of wealth; all things belong to Allah

•            Interest (Rib’a) is forbidden as it creates inequality in society
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•       Material pursuits (pursuing wealth) must be balanced with spiritual needs

•       Societal responsibilities and social justice must be considered i.e. ensure all economic transactions are fair and equal

•              Equal and a responsible free market is encouraged and strict regulations are placed to ultimately direct the market's functioning towards social responsibility. Monopolies are therefore outlawed.

•        The risk between investor and borrower must be shared

•        Uncertainty in transactions/contract is forbidden e.g. one party may not be as fully informed as the other, or neither party has full control over the outcome of the transaction e.g. insurance

•        Investing money into anything prohibited by Islam and is harmful to society e.g. gambling, pork, alcohol, tobacco

Islamic Finance essentially revolves around earning wealth through responsible, honest and equal means whilst consistently taking social responsibility into consideration. Compare this with today's financial system where its endemic risky nature, irresponsible lending and borrowing, the high interest rates have caused global recession.

Perhaps that's WHY Islamic Finance is coming into the spotlight. People are wondering if the word 'recession' would be familiar to us at all if Islamic finance was commonplace.