A beginner’s guide to Islamic finance
A beginner’s guide to Islamic finance

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • A beginner’s guide to Islamic finance
  • Islamic finance framework
  • Sources of Shari’ah
  • Key principles of Islamic finance
  • Key participants in the market
  • Transaction structures
  • Ijarah
  • Istisna’a
  • Mudaraba
  • Murabaha
  • More...

This Practice Note provides a basic introduction to Islamic finance and in particular looks at:

  1. the nature and scope of Shari’ah

  2. sources of Shari’ah

  3. key principles of Islamic finance

  4. key participants in the Islamic finance market, and

  5. key Islamic finance transaction structures

Islamic finance framework

Shari’ah or Islamic law is the legal system of the religion of Islam that sets out a system of duties or code of conduct for individuals to follow so that they may live their life in a fulfilling and beneficial manner.

Although the phrase ‘Islamic law’ is widely used, Shari’ah is often the preferred term to demarcate from Western or Christian concepts of ‘law’ and associated assumptions, for example:

  1. the Shari’ah is inherently non-secular and does not distinguish between religious and governmental institutions, authorities and ordinances

  2. the Shari’ah is both a legal system and a moral framework, rather than, for example, a legal system underpinned or influenced by a moral framework, and

  3. the Shari’ah regulates both public and private spheres

The Shari’ah spans geographical and jurisdictional boundaries. However, even in Middle East jurisdictions, where a majority of countries recognise the Shari'ah as a primary, if not the only, source of law, the constitutions of many jurisdictions allow for the primacy of laws passed by the legislature or ruler and include provisions addressing the relationship between those laws and the Shari'ah. No Western jurisdiction recognises the

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