IFAC - Islamic Finance

WHAT DO WE MEAN BY ISLAMIC FINANCE? Islamic finance—or perhaps more accurately, “Sharia-compliant finance”—is a form of finance in which the financing activity is in accordance with the principles of Sharia law, the moral and ethical code of the Islamic religion. Unlike conventional finance, Islamic finance prohibits all forms of interest for lending money (that is, usury), investments in businesses that provide goods or services considered contrary to Islamic principles (such as gambling, pornography, alcohol, and drugs), and selling things that one does not own (that is, short-selling). While these prohibitions are tied to the basic tenets of Islam, and so have been applied for hundreds of years by Muslims, Islamic finance has only more recently manifested itself in financial products, services, and institutions. In the broadest sense, Islamic finance principles are intended to place some consideration on society as a whole—the impact that all financial activity has on the welfare of people and their community. Today there are a number of banks and other financial institutions, as well as units within conventional banks and financial institutions, that apply these principles. WHY IS ISLAMIC FINANCE IMPORTANT? Globally, there is increasing demand, from both Muslims and non-Muslims, for more information on Islamic finance. From a commercial standpoint, more institutions are seeking guidance on the regulations, standards, compliance, and legal processes used to conduct business activities in accordance with Islamic finance. Within primarily Islamic societies, there is increased interest in best practices, trends, and research. In addition, the regulatory institutions of both Western and non-Western countries are seeking to work more closely together to facilitate greater international trade and investment.   The Economist [http://www.economist.com/blogs/graphicdetail/2012/04/focus-2] reported that, according to the Islamic Development Bank (IDB) [http:>sukuk. The