Islamic Finance is growing in this materialistic world every day. Two of the strongest types of markets are interbank money markets and Islamic capital markets.
The main purpose of establishing the Islamic finance system was to avoid riba, gharar, maysir, and many other prohibited activities.
In this informative blog post, we’ll illuminate the four worthwhile principles of Islamic finance. Let’s examine them.
Principle #1 — Major Sources of Islamic Finance
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#1. Quran – The Quran is the sanctified Book containing Allah Almighty’s strong connection with HIS Beloved Prophet (S.A.W.W) transmitted to us. In the Quran, the purest words of Allah define absolute authority that will assist Muslims in deciding the legality of all legal obligations.
#2. Sunnah – The Ahadeeth are literally methods, all the sayings and everyday practices of Allah’s Last Messenger (S.A.W.W). Islamic scholars and believers strongly agree that Sunnah is a valuable source of Shariah.
#3. Ijma — It’s a secondary source of Islamic law that refers to rulings acquired from the Sanctified Quran and Sunnah through humans’ reasoning and makes an influential impact on all Muslims. It is an act of deciding and agreeing on any matter, as Ijma means “unanimous agreement” among the jurists after the Prophet (S.A.W.W) left this world.
#4. Qiyas — Logically, Muslim jurists describe Qiyas as posing an original Order (hukm) or ruling proven in a previous case to a new case on which there’s no law prior since the two cases have a mutual effective cause (illah).
Principle #2 — Prohibition of Riba’
Riba is any excessive or oppressive compensation. The religion Islam strictly prohibits riba, as mentioned clearly in the Holy Quran. Some people are unaware of whether interest is riba or not. To address their misconception, Fuqaha has made it clear that interest is riba.
As a result, conventional banking practices are undoubtedly incompatible with Islamic faith and beliefs, which intensely prohibit riba.
Principle #3 — Prohibition of Gharar
The next principle is that Islam prohibits excessive gharar. Gharar is any type of transaction that is unclear due to the lack of ignorance. In other words, Gharar is also defined as uncertainty, hazard, chance, or risk. So, it’s prohibited in Islam to get involved in different activities whose results are uncertain or whose consequences are hesitant.
The sale of fish in the sea, birds flying in the sky, an unborn calf in its mother’s womb, the unfertilized eggs of camels, their semen, unripened fruits on the trees, and so on are some examples of gharar mentioned in Ahadeeth.
Principle #4 — Prohibition of Maysir
Last but not least, maysir is defined in terms of gambling or speculating. For instance, Islam disallows or forbids Muslims to be involved in casinos, betting, or any other game chance. Gambling is strictly prohibited in Islam because it involves the probability of earning money or gaining something valuable by betting without making any effort.
That’s why when we talk about Islamic finance, this system never allows Muslims to invest in gambling and other prohibited businesses. It’s because the investment itself and the returns they may get in terms of revenue and profits are completely considered Haram.
