Islamic Finance

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Islamic Finance For Dummies Cheat Sheet

Islamic finance is a global financial system that complies with sharia (Islamic law) — a code of conduct that guides all aspects of Muslim life. Sharia prohibits certain elements that are common in conventional [more…]

How Is Islamic Finance Different from Conventional Finance?

Islam is more than a religion; it's 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 [more…]

Compare the Structures of Commercial and Islamic Banks

Comparing the structures of Islamic banks to the structure of conventional commercial banks is somewhat difficult because the structures differ according to each bank’s specific requirements. To give you [more…]

Four Ways Conventional and Islamic Commercial Banks Differ

Although Islamic commercial banks have many products similar to those offered by conventional banks, the two entities differ conceptually. One key difference is that conventional banks earn their money [more…]

The Role of Corporate Governance in Islamic Financial Institutions

Strong corporate governance, a critical element of business leadership, is important in any industry. But the corporate governance of Islamic financial institutions is especially important for these reasons [more…]

Who Are the Stakeholders of Islamic Financial Institutions?

The term stakeholders refers to all the people who are formally or informally involved with — and affected by — the corporate governance of a business. Here are the stakeholder groups for an Islamic financial [more…]

Unique Financial Statements Used by Islamic Financial Institutions

In addition to the four financial statements most commonly issued by all corporations, Islamic financial institutions issue four more. That’s because an Islamic institution must keep certain pools of money [more…]

Sharia Boards and Islamic Financial Institutions

A sharia board is probably the most easily recognizable feature that distinguishes an Islamic finance institution from a conventional one. All Islamic financial institutions are expected to operate in [more…]

The Structure of Sharia Boards for Islamic Financial Institutions

The sharia board, or sharia supervisory board (SSB), sits near the top of an Islamic financial company’s governing structure. If you look at the organization of such a firm, you often find the sharia board [more…]

What Is Islamic Finance?

Islamic finance is a financial system that operates according to Islamic law (which is called sharia) and is, therefore, sharia-compliant. Just like conventional financial systems, Islamic finance features [more…]

Takaful Funds in Islamic Finance

A takaful fund is basically a pool of money that participants create to help each other. But such funds can’t survive if a country’s regulations don’t allow for a cooperative legal form of business organization [more…]

What Is Retakaful (Reinsurance) in Islamic Finance?

Retakaful is the Islamic alternative to the reinsurance industry. In the conventional insurance industry, an insurance company reduces its risk of paying large claims by insuring a portion of its risk [more…]

Why Takaful Is Needed in Islamic Finance

Takaful is a new spectrum of insurance products that has emerged in recent decades. These products are based on principles, features, and structures that set them apart from conventional insurance. [more…]

The Islamic Principles behind Takaful

Takaful is a form of mutual insurance based on the principles of cooperative risk sharing, mutual responsibility, mutual protection, and solidarity among groups of participants. Each takaful model [more…]

How Risk Management Is Different for Islamic Financial Firms

An interesting feature of Islamic finance — aside from (but related to) the need to remain sharia-compliant — is that risk and return are shared between the firm and its fund providers. In a conventional [more…]

Risks Unique to Islamic Finance

To create value for their participants, senior management and boards of directors at Islamic financial institutions must take necessary steps to manage their unique risks. Islamic financial institutions [more…]

Types of Sukuk in Islamic Finance

Sukuk, or Islamic bonds, comprise one of the fastest growing segments in both the Islamic and global financial industries. Islamic business contracts provide the basis for Islamic investment funds. Various [more…]

The Mudaraba Contract in Islamic Finance

A mudaraba contract is one of the most widely used financial instruments in the Islamic banking sector. A mudaraba contract is based on a partnership in which one partner is the financier [more…]

The Musharaka Contract in Islamic Finance

The second kind of equity participation financial instrument used by Islamic banks is based on a musharaka contract. It establishes a partnership or joint venture for an economic activity between the bank [more…]

Make Purchases with Cost Plus Profit (Murabaha) Contracts

In murabaha agreements, a commodity is sold for cost plus profit, and both the buyer and seller know the cost and the profit involved. Basically, this product is a kind of trade financing instrument used [more…]

Reverse Murabaha (Tawarruq) in Islamic Finance

Tawarruq is a financial instrument in which a buyer purchases a commodity from a seller on a deferred payment basis, and the buyer sells the same commodity to a third party on a [more…]

Leasing or Renting (Ijara) in Islamic Finance

The Arabic term ijara means “providing services and goods temporarily for a wage.” The ijara contract, as you may guess, involves providing products or services on a lease or rental basis. In the ijara [more…]

Financing Construction Projects or Purchase Orders (Istisna) in Islamic Finance

Istisna is a financial instrument in Islamic finance in which a manufacturer agrees to complete a construction project on a future date for a fixed, agreed-upon price and with product specifications that [more…]

Seven Prohibited Industries in Islamic Financial Investments

The first test a sharia scholar or fund manager applies when considering whether a company is sharia-compliant focuses on the company’s core business. If the company’s business centers on prohibited activities [more…]

Ten Economic Benefits of Following Islamic Principles

Here is an overview of crucial ways in which Islamic principles have the potential to strengthen economies. The concepts presented are largely theoretical at this point; only time will tell how the industry’s [more…]

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