Chapter 22
The Impact of Islamic Finance
22.1 INTRODUCTION
Islamic finance is a system of banking activity that is consistent with Islamic law (Sharia) principles and guided by Islamic economics. In particular, Islamic law prohibits the collection and payment of interest (commonly called riba) in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values). In the late 20th century, a number of Islamic banks were created to cater for this particular banking market. Because of the very large number of individuals and corporations that wish to raise or invest capital according to Sharia principles, many of the world’s leading financial institutions such as HSBC, UBS and Citicorp, as well as institutions whose origins lie in Islamic countries, offer Sharia compliant products to their customers. Conservative estimates suggest that over USD 500 billion of assets are managed according to Islamic investment principles. Such principles form part of Sharia, which is often understood to be Islamic law, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam.
An investor who wishes to invest according to Sharia principles may not:
- Be a party to any transaction that, however indirectly, involves the ...
