Islamic Financial System And Islamic Institutions

1840 Words Apr 4th, 2016 8 Pages
An Islamic Financial system could be simply defined as a financial system that is based on the principles and values of Islam which mops up riba and guarantees a profit-sharing mechanism.
Islamic Financial system has developed over past decades as an indication of Islamic Worldwide view represented by the Shari’ah. The profound basis of Islamic financial system surpasses the interaction of factors of production and the behaviour of the economy. (Iqbal 1997)
Shari’ah is the foundation on which Islamic finance is built. The mainstay of the Islamic Financial system is the linkage between economic activities in the Islamic financial system and the real sector.
The constancy of currency is furthered in an Islamic financial system because money is not regarded as a commodity.
“Islamic finance is equity-based, asset-backed, ethical, sustainable, environmentally and socially responsible finance. It promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare”. (World Bank)
Islamic financial system advocates the highest level of governance and transparency because it is guided by principles of the Shari’ah.
Generally, in any economy, financial systems (conventional and Islamic) exist in order to raise funds and channel these funds into productive financial and economic activities. Thus, financial systems also perform the function of mobilising surplus funds from economic agents and institutions and…
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