CHAPTER 3Islamic Finance Products Explained

Due to the prohibitions on interest, gambling, uncertainty and short selling, Islamic financial products are not the same as conventional financial products. Accumulation of wealth is encouraged, but not by making money with money. There always has to be an underlying asset or enterprise that requires financing. Generally it can be stated that Islamic finance is in many ways similar to merchant banking, is conservative and applies solid banking principles. There are a number of products in Islamic finance, and the main ones are explained in this chapter. Here the focus is solely on the technical framework in which these transaction types work. How they can be applied in practice is elaborated on in later chapters.

3.1 Definitions

The definitions in Table 3.1 are only associated with transaction types and parties to the transaction. A more comprehensive list is provided in the Glossary. These are by no means all the terms used in Islamic finance, and different words can be used to identify the same subject. In addition, due to the fact that Arabic is a phonetic language, the spelling of a word in Table 3.1 represents what the word sounds like, but different spellings may be used in different languages.

Table 3.1 Selected word list

Word Description
Hawala Transfer of money from one person to another. The recipient may charge an administration fee, which should not be proportionate to the sum of money.
Ijara Bilateral contract ...

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