Islamic finance and banking operate on principles that are in line with Islamic law (Sharia). The Ofqual Level 5 Certificate Concepts of Islamic Finance and Banking (fast-track) covers the following key principles:
| Principle | Description |
|---|---|
| Prohibition of Interest (Riba) | Islamic finance prohibits the payment or receipt of interest, as it is considered exploitative. Instead, profit-sharing arrangements are used. |
| Risk-Sharing | Parties share both profits and losses in Islamic finance transactions, promoting fairness and discouraging excessive risk-taking. |
| Asset-Backed Financing | Islamic finance requires transactions to be backed by tangible assets, promoting transparency and reducing speculation. |
| Ethical Investments | Islamic finance prohibits investments in industries such as alcohol, gambling, and pork, promoting ethical and socially responsible investing. |
These principles form the foundation of Islamic finance and banking, providing a framework for conducting financial transactions in accordance with Sharia law.