ISLAMIC FINANCE: A CODE OF LIFE.

Byline: NAZIR AHMED SHAIKH

Islam is more than a religion. It is also a code of life that deals with social, economic, and political matters. Every Muslim is expected to live according to the Islamic code, or Shariah. Each issue addressed under Shariah is entwined with all other issues; therefore, economic matters are related to religion, culture, ethics and politics.

OVERVIEW

Islamic finance is a financial system which operates in accordance with Shariah or Islamic law. The primary difference between Islamic and conventional finance is the treatment of risk. Shariah prohibits certain elements that are common in conventional finance, such as interest and speculation. Under Shariah law, finance is based on the principle of "profit and loss sharing," meaning a lender shares equal financial risk.

Therefore, the underlying ethical code of Islam requires banks to minimize the risk of default. Since its initial conception, Islamic financing has evolved to be competitive as many other conventional loan packages. Some of the main components of Islamic finance are outlined below. The modern Islamic finance industry is relatively young. Its timeline begins only a few decades ago. The Islamic finance is evolving rapidly and continues to expand to serve a growing population of Muslims as well as conventional, nonMuslim investors.

HISTORY OF ISLAMIC FINANCE

The core concepts of Islamic finance date back to the birth of Islam in the 6th century; Muslims practiced a version of Islamic finance for many centuries. The modern Islamic finance industry emerged only in the 1970s, in large part because of efforts by early 20th-century Muslim economists who envisioned alternatives to conventional Western economics. The modern Islamic finance industry is young; its timeline begins only a few decades ago. But Islamic finance is evolving rapidly and continues to expand to serve a growing population of Muslims as well as conventional, non-Muslim investors.

The core concepts of Islamic finance date back to the birth of Islam in the 6th century; Muslims practiced a version of Islamic finance for many centuries before the Islamic empire declined and European nations colonized Muslim nations. The modern Islamic finance industry emerged only in the 1970s, in large part because of efforts by early 20th-century Muslim economists who envisioned alternatives to conventional Western economics (whose interestbased transactions violate Islamic law). In 1963 the first modern Islamic bank, MitGhamr Savings Bank, was opened in Egypt. In 1975, the Islamic Development Bank opened in Saudi...