Islamic Finance

The key difference between conventional and Islamic financing is that, while the time value of money is not permissible in a pure 'cash now for more cash later' transaction, it is allowed if the financing is an integral part of a real trade in goods.

So while the organisation is not allowed to lend USD 100,000 in cash now in return for USD 110,000 payable in a year, it is allowed to sell an asset with a market price of USD 100,000 for USD 110,000 payable in a year.

Therefore often described as an asset-based financing system.

The key Shariah Contracts used for trade financing are murabaha and salam.

• Riba: Interest or usury¹⁾, which is strictly prohibited in Islamic finance.
• Gharar: Uncertainty or ambiguity in contracts, such as speculative transactions or contracts with unclear terms.
• Maisir: Gambling or speculative transactions, where gains are based purely on chance.
• Haram Investments: Investments in businesses involved in activities prohibited by Islamic law, such as alcohol, gambling, pork, and unethical industries.