What is Islamic finance? Islamic finance is commonly associated with the Muslim community, but anybody can use it as an investment strategy.
What is Islamic finance?
Islamic financial institutions work on a philosophy of prohibiting transactions considered immoral and promoting greater social justice by sharing risk and reward.
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The customer and the Islamic bank share the risk of any investment on agreed terms, and divide any profits between them.
Islamic finance does not allow creating new financial risks in order to gain profit; it is about protecting society from trickery, fraud and social tensions. Shariah products also stress accountability, fairness and transparency.
In addition to risk sharing and the prohibition of interest, under the principles of Shariah, investment is also disallowed in businesses that deal with alcohol, pork, gambling, weapons, tobacco, media, ‘conventional’ financial institutions,
Shariah investment tries to avoid investing in business that are not Shariah-compliant. This often entails, lending money on interest, gambling, goods such as tobacco, and items such as alcohol which are banned under the religion.
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By GlobalDataThe most distinctive element of Islamic finance is the prohibition of interest, whether nominal or excessive, simple or compound, fixed or floating.
To comply with Shariah, investment must not involve interest (also known as ‘Riba’).
The Islamic finance industry grew by 6% to reach $2.4trn by the end of 2017. However, 2018 Global Islamic Finance Report notes this was the fifth consecutive year of declining growth.
But despite this, experts are optimistic about the sector and foresee a rise in popularity for Shariah-compliant products.
Nada Jarnaz, partner specialising in Islamic finance at legal firm Howard Kennedy, says: “The Islamic investment community is well serviced in those jurisdictions where Muslims make up the majority of the population, such as Malaysia, however the choices become somewhat limited in those jurisdictions when Muslims represent the minority, which is the case in European countries.”
Jarnaz adds: “Islamic finance and investing isn’t limited to Muslims, and any one can invest and have access to those opportunities, which means that creating investment opportunities for those looking for Shariah compliant investments could in fact reach a much wider market.”
In June 2018, Maybank partnered with the Wealth Management Institute (WMI) of Nanyang Technological University Singapore (NTU) to set up a wealth management academy.
The establishment of the Maybank Wealth Management Academy (WMA), considered to be the first of its kind by a bank in Malaysia, will enable the bank to develop the skill set of its personnel.
