Salient Features of Islamic Finance

August 8, 2016
Salient Features of Islamic Finance

Salient Features of Islamic Finance

Salient Features of Islamic Finance: The injunctions of Islamic teachings deal with all spiritual and practical aspects of human beings. The Holy Quran and traditions of the Holy Prophet (Peace Be Upon Him) are the principle sources of Islamic commandments. Like all other aspects, Islam has also laid down a complete and comprehensive system of finance.  Islamic Finance deals with all financial provisions, methods, practices, contacts, and other financial instruments according to the fundamental Islamic writings.

The system of finance introduce by Islam is not limits to banking but it also covers formation of capital, capital markets and all other kinds of financial intermediation. Some of these values are common in both western and Islamic systems of finance, but some norms are only attached with Islam. Islamic financial limitations have declared some western practices of finance categorically void. Thus, religious laws of Islam in commercial field reflects that Islam is not system of merely prayers but it is complete system of life. here some prominent features of Islamic finance are mentioned.


Riba, the most important feature of Islamic finance, stands for excess or extra, is Strictly proscribe in Islam. Usury and interest also fall in this category. Riba is the most dislike practice which trigger other evil activities and social injustice in the society. Gharar is another important feature of Finance according to Islam. Gharar means ambiguity, doubt or lack of specificity in the financial transactions. It is also discourage feature.  Investment in Islamic finance is allow but in some permitt and legal possessions and activities. If someone is going to invest in the business of alcohol, it will be declar null and void.

Likewise, one cannot invest in the transactions of casino. Islam promotes the concept of free market. Thus, market prices must be regulate according to nature of demand and supply. All investors must be give any sort of information on basis of equality. Mostly the Muslims who are willing to perform Umrah in December during the vacations or any time of the year except the hajj season they always keep in mind to earn halal to make arrangements for umrah.

Therefore, some financial transactions and instruments are create on the basis of aforemention features of Islamic finance.  Musharaka, it is system in which investor make financial payment to the enterprise but also plays his active role in its management.  Profits will be divide according to pre-decide ratio and losses are also shar between both parties. This system endorses an equity-based transaction. In Mudaraba, one party will invest and other party will bound to provide management. Profits will be divide in both parties but financial losses are tolerate by the investor.


In Murabaha, one party buys some items and sells the other party. In Tawarruq, it the finance supplier purchases an asset and instantly vends it to the customer on an overdue compensation basis. The customer then vends the same to a third party for instant conveyance and sum. Ijarah, it is the letting or hiring of a corporeal asset, and it is one of the fastest rising actions of Islamic monetary organizations. Takaful, it is a method of insurance. It is a prearrangement by an assembly of people to protect each other from damage or harm through the creation of a distinct pool of resources. Sukuk is called “Islamic bond”. it indicates, speaking more precisely, an Islamic investment documentation.

Some financial practices are consider against Islam because these activities do promote Riba or Gharar indirectly. Likewise, we are facing dearth of experts of Islamic finance. While booking December umrah packages the Muslim brothers always keep in mind the sources of their finance, On the whole, it can be said that lack of consistency in laws and measures, and shortage of accomplished specialists are among the main problems confronted by Islamic finance. Hence, there is dire need to establish Islamic finance institutions at emergency level in order to counter the social and economic evils.

Related Posts