Question

Islamic financial systems and markets are said to perform similar functions as conventional financial systems and markets. Such function includes saving, wealth, liquidity, credit, payment, risk protections and policy. Is this true, false or uncertain? Explain your answer

Answer 1

Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies.The islamic finance believes that ALLAH is the owner of all wealth and people are merely its trustees.

Based on the core concepts of Islamic economics, Islamic finance institutions adhere to certain principles that differenciate them from conventional finance:

• Prohibiting interest (riba)

• Steering clear of uncertainty-based transactions (gharar)

• Avoiding gambling (maysir or qimar)

• Avoiding investment in prohibited industries

However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts.