Islamic capital markets : products and strategies.

Abstract

Islamic finance is the only financial system in the world today that is based on the teachings of a major religion, and it proves to be increasingly attractive for secular Muslims and non- Muslims as well. While the conventional financial industry has been suffering a tremendous loss of reputation, due to its obvious shortcomings and its harmful impact on economies worldwide, a Shariah-compliant financial system appears to be profitable, viable, fair, and a clear survivor of the recent global debacle. Islamic finance represents a fundamental departure from conventional interest-based and speculative practices, as it relies completely on real economic transactions, such as trade, investment based on profit-sharing, and other solidary ways of doing business. Rather than treating money as a commodity (as in capitalism), in Islam, money is no more than a measure of value. Many of the features of Islamic finance are also found in other religions and ethical systems. For instance, the prohibition of interest is present in all Abrahamic faiths: Christianity, Islam, and Judaism. Interest was limited in Hindu law, the Code of Hammurabi, the Magna Carta, and Roman law, as well as in many US States until 1981. The rejection of financial speculation, which is detached from real economies, is shared by many observers and consumers in non-Islamic, Western countries. There is a significant overlap between Islamic principles and socially responsible investment (SRI), given that Islam preaches social justice, ecology, kindness, and what is called nowadays sustainability. All this makes Islamic finance a topic of truly global interest and relevance, as there is the potential for introducing a financial system which is both ethical and stable at the same time.