Islamic Finance

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Islamic finance is a type of financing activities that must comply with Shari’ah (Islamic Law).

Under Shari’ah law, it is not permitted to charge interest as money is not allowed to generate more money by being put into a bank account or lent to someone else. Instead, financial institutions make their money by sharing the risk of their investments with investors, operating on a profit-loss basis. Importantly, Islamic finance is not just for Muslims as perceived – on the contrary, Islamic financial products have also proliferated in non-Muslim communities. - (Parmar & Raza, 2019)

The following are the most widely available types of Islamic Microfinance contracts. Each can either operate individually or be combined with other contracts to create hybrid instruments.

  • Murabaha Sale (Cost Plus Markup Sale Contract)
  • Musharaka and Mudaraba (Profit and Loss Sharing)
  • Ijarah (Leasing Contract)
  • Takaful (Mutual Insurance)