Islamic finance is a unique system that operates in accordance with Sharia law, which prohibits the payment or receipt of interest (riba). Instead, Islamic finance utilizes a variety of financial instruments that comply with Islamic principles. Here are some of the main financial instruments used in Islamic finance as taught in the Level 5 Certificate in The Concepts of Islamic Finance and Banking online:
| Financial Instrument | Description |
|---|---|
| Mudarabah | A profit-sharing partnership where one party provides capital and the other party provides expertise. |
| Musharakah | A joint venture partnership where profits and losses are shared based on the agreed ratio. |
| Ijara | A leasing agreement where the lessor retains ownership of the leased asset and the lessee pays rent. |
| Sukuk | Islamic bonds that represent ownership in a tangible asset or project. |
| Murabaha | A cost-plus financing arrangement where the seller discloses the cost and markup to the buyer. |
These financial instruments are designed to facilitate transactions and investments in a way that is compliant with Islamic principles. By understanding and utilizing these instruments, individuals and institutions can participate in the Islamic finance industry while adhering to Sharia law.