UAE
SAUDI ARABIA
QATAR
No Result
View All Result
AZIMUTH GULF
  • Latest News
  • Digital Trasformation
  • Internationalization
  • Middle East Markets
Azimuth Gulf News
  • Latest News
  • Digital Trasformation
  • Internationalization
  • Middle East Markets
No Result
View All Result
Azimuth Gulf News
No Result
View All Result
Azimuth Digital Azimuth Digital Azimuth Digital
ADVERTISEMENT
Home Internationalization

Islamic Finance. A Different Approach to Traditional Banking

Explanation of Islamic Finance principles

Nardino Di Marco by Nardino Di Marco
August 30, 2021
in Internationalization, Middle East Markets
0
islamic finance
https://www.linkedin.com/company/azimuth-international

We have already talked about topics regarding finance and decentralized finance, alternative ways of making money work. Today, however, we want to show you how Islamic finance works, a financial activity that is constantly growing by about 20% per year.

The entire system must necessarily comply with Sharia, or Islamic Law, which is why certain businesses are allowed or prohibited. That’s also why many people ask themselves how do Islamic banks make money.

Introduction of Islamic Banking and fundamentals

Just like everything belonging to Islamic culture, Islamic Finance also respects the principles of the Qur’an. In this regard, the Qur’an prohibits increases (riba), or money earned through money – interest.

In short, the act of lending a certain amount of money in order to receive a percentage more in the following year is forbidden in the entire Muslim banking system.

In addition, investments in activities, companies or services that violate Islamic principles, such as the production of pork, alcohol and similar products, are also prohibited.

Speculation is also forbidden. Called maisir, this does not allow Islamic Finance companies to sign contracts whose future cannot be clearly predicted. Consequently, risk, or gharar, is totally banned. This includes derivatives, futures and short-selling assets.

One last but crucial principle of Islamic Finance is the encouragement of partnerships and collaborations. Two individuals or companies, in fact, must share both profits, risks and losses.

How can I buy a home within Islamic Finance?

Let’s say you want to buy a house. There are two alternatives:

Murabaha: the bank buys the house you want, reselling it to you at a slightly higher price. You, however, will have the option to pay in instalments.

Musharakah: the bank buys the house with you. You will give a certain amount of money equivalent to the bank’s share.

For example, Alrayanbank‘s services, unlike conventional financing to buy a property, do not involve any interest charges. Rather, they are based on joint properties. Each time you pay a monthly payment, you assimilate a share of the property, while still paying the bank for the share you own.

This is very different from a loan, where money is merely lent out and then paid back with interest that is sometimes too high.

What about other forms of investment?

Since Islamic Finance complies with Sharia, some of the conventional investment instruments cannot be used. Therefore, there are only two types of services available:

  • Equities
  • Fixed return instruments

With equities it is possible to invest in businesses which, however, must not have anything to do with activities not foreseen by Sharia. Therefore, no tobacco, alcohol, gambling, interests, lending, pork and similar can be used as an investment.

Consequently, given the prohibition of loans, Islamic Finance does not have bonds, if not sukuk, or partial ownership of an asset.

Conclusions

You’ve surely realized that Islamic Finance is much different in some aspects to traditional finance. On some fronts it can be much more convenient, such as when buying a new home.

On others, however, it may not meet everyone’s needs, as it prohibits many forms of investment.

In these cases, differentiating between the various tools and services available online and offline can be a great way to mitigate risk and maximize gains.

Useful Resources

  • Alrayanbank
  • Dubai Islamic Bank
  • Emirates Islamic Bank
  • Maldives Islamic Bank
Tags: Middle East Markets

Related Posts

cristiano ronaldo
Internationalization

Ronaldo’s impact on the development of football in Saudi Arabia

January 28, 2023
saudi arabia
Internationalization

Vision 2030: Overview and Goals for Saudi Arabia’s Economic and Social Development

January 18, 2023
Jeddah landscape
Internationalization

Islamic Arts Biennale of Jeddah 2023

December 20, 2022
How To Translate a Business Website?
Business Interpreting

How To Translate a Business Website?

November 25, 2022
interpreter services - conference UAE
Business Interpreting

Why traditional interpreting services are coming back as a trend

November 11, 2022
Meta Business Suite - platform
Digital Trasformation

Meta Business Suite: boost your business for free

November 11, 2022

POPULAR POSTS

  • protection of endangered languages

    Why We Should Protect Endangered Languages

    0 shares
    Share 0 Tweet 0
  • Islamic Arts Biennale of Jeddah 2023

    0 shares
    Share 0 Tweet 0
  • Saudi Arabia Vision 2030

    0 shares
    Share 0 Tweet 0
  • E-Residency: Dubai VS Estonia

    0 shares
    Share 0 Tweet 0
  • Ronaldo’s impact on the development of football in Saudi Arabia

    0 shares
    Share 0 Tweet 0
Azimuth Digital Azimuth Digital Azimuth Digital
Azimuth Gulf News

Keeps you up to date on the latest trends in the UAE and the Gulf market. Find out what your target customers need, search for new business opportunities, and learn how to reach new potential clients with compelling marketing techniques.
Find out how to move the right steps to expand your company overseas with the most successful digital transformation procedures and effective localization strategies.

  • Latest News
  • Digital Trasformation
  • Internationalization
  • Middle East Markets
Menu
  • Latest News
  • Digital Trasformation
  • Internationalization
  • Middle East Markets

AZIMUTH BOARD

© 2022 Azimuth International  | Built with by Azimuth Digital | Privacy Policy   Cookie Policy

No Result
View All Result
  • Latest News
  • Digital Trasformation
  • Internationalization
  • Middle East Markets

© 2022 AZIMUTH INTERNATIONAL - Azimuth Digital Azimuth Digital.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Add New Playlist

Manage Cookie Consent
We use technologies like cookies to store and/or access device information. We do this to improve browsing experience and to show personalized ads. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
Manage options Manage services Manage vendors Read more about these purposes
View preferences
{title} {title} {title}
Go to mobile version