The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:
Shari'ah compliant financing arrangements, also known as Islamic financing arrangements, are designed to comply with Shari'ah or Islamic law, which is a legal system based on the religion of Islam.
To comply with Shari'ah law, Islamic financing arrangements must adhere to a number of principles, the key ones being:
sharing of profit and risk—there must be some element of risk in any investment in order to be able to receive the benefit of a profit
prohibition on interest—money must not on its own create more money
prohibition on uncertainty—to ensure that no party has an unfair advantage over another
prohibition on speculation—profit should be made through hard work and effort, not purely by chance
no unjust enrichment, and
prohibition on dealing in forbidden commodities, such as pork and alcohol
For more information on the sources and key principles of Shari'ah law, see:
Practice Note: Sources of Shari'ah— law
Practice Note: Key principles of Islamic finance
Islamic financing is structured differently to conventional financing because it has to adhere to the key principles of Shari'ah compliant financing, such as not giving rise to interest. This may mean, for instance, that the relevant asset for which financing is obtained is transferred numerous times instead of just once had conventional financing been
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