Originally written by Timothy Adler on Small Business
What is Islamic finance?
Islamic finance is a means of funding or banking money in a way that respects the principles of Sharia law, guided by Islamic economics. In Arabic, Sharia means the clear, well-trodden path to water. The fundamental principle of Islamic finance is to avoid any financial activities which could be deemed either harmful (Haram) or risky for the user.
The main difference between Islamic finance and standard finance is that charging interest in forbidden. Conventional banks and lending facilities earn money by charging fees and monthly interest charges for borrowers.
The principle features of Sharia-compliant finance are:
A ban on what the Koran refers to as “riba” and we would call paying interest
Sharing losses as well as profits
What is Sharia-compliant finance?
Sharia-compliant finance bans excessive risk or uncertainty, as well as restricting any form of gambling or speculation.
Businesses involved in the activities below cannot use Islamic finance:
Alcohol
Gambling
Tobacco
Pork
Entertainment such as music, TV or cinema
Pornography
Arms sales
Do you have to be Muslim to use Islamic finance?
No, you do not have to be Muslim as long as your business is halal (allowed) or promotes a social good.
What kind of small business suits Islamic finance?
Islamic finance dictates that a business