Definition for : Islamic finance

Sharia law is not opposed to the centuries old principle of earning a Return on money that is lent, but rather on the fixed and predetermined nature of the Return (Riba). Under Islamic law, the basis of any Return on invested money should be the Profitability of the asset being financed by the Investment. This should be the sole basis for any Earnings. As a matter of principle, it excludes the idea of fixed Returns that are disconnected from the performance of the asset financed. In other words, Islamic finance is based on the principle of sharing both losses and profits. The main obligation for a financial transaction is that it must be based on a tangible asset so that the losses and profits generated by this asset can be shared.

(For more, see the Vernimmen.com Newsletter, November 2006)

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