Shariah requirements refer to the guidelines and rules derived from Islamic law that govern financial transactions, investments, and business conduct to ensure all activities conform with Islamic ethical and legal principles[1].
These requirements are built around several core principles:
- Prohibition of Riba (Interest): Earning or paying interest is strictly forbidden. Wealth should be generated through legitimate trade or investment in tangible assets, not by lending at interest[2][3][6].
- Risk Sharing: Shariah-compliant finance promotes contracts that emphasize the equitable sharing of risk, profit, and loss between all parties involved, such as in Mudarabah and Musharakah partnerships[2][4][8].
- Avoidance of Gharar (Uncertainty and Speculation): Transactions involving excessive uncertainty, gambling, or speculative investments are prohibited. All agreements must be clear, well-documented, and transparent[3][5][8].
- Asset-Backed Transactions: Financial activities should involve real economic transactions with underlying assets. Lending or financing is based on trading, leasing, or profit-sharing linked to tangible goods or services rather than on speculative profits[4][6].
- Ethical and Socially Responsible Investing: Investments in activities or industries deemed haram (forbidden), such as alcohol, gambling, tobacco, pork, or weapon production, are strictly avoided. The objective is to support socially beneficial and ethical enterprises[3][5][6].
- Shariah Governance and Certification: Financial products and services must be reviewed and certified by qualified Shariah scholars or boards to ensure ongoing compliance. Interpretations and specific requirements can vary by Islamic school of thought and jurisdiction[1].
- Transparency and Mutual Consent: All transactions must be conducted fairly, with clear documentation, mutual consent, and without exploitation[8].
Collectively, these requirements establish an ethical framework for finance that aims to promote fairness, social justice, and responsible economic development in accordance with Islamic law[2][4].
References
- [1] Understanding the Difference Between Islamic Finance and Shariah-Compliant Finance
- [2] Comprehensive Guide to Shariah-Compliant Finance: Principles
- [3] Understanding Shariah-Compliant Investments
- [4] Principles and Products of Islamic Finance – EconStor
- [5] Understanding Shariah Compliant Indexing | LSEG
- [6] Understanding Sharia-compliant Banking: Principles and Practices
- [7] Shariah-Compliant Home Finance Defined – Guidance Residential
- [8] Islamic Banking and Finance Definition: History and Example
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