Islamic finance

Islamic finance comprises financial practices structured to comply with Islamic law. It prohibits interest and excessive contractual uncertainty and emphasizes lawful trade and risk-sharing.

Riba: Riba is an unjustified increase prohibited in Islamic law, commonly associated with interest on loans. The prohibition of riba is a defining constraint on Islamic financial contracts.
Murabaha: Murabaha is a sale in which a seller discloses the acquisition cost and adds an agreed markup. Banks use this cost-plus sale to finance purchases without charging interest on a loan.
Islamic banking: Islamic banking provides deposit, financing, and payment services through structures intended to comply with Islamic law. Banks translate Islamic contract principles into everyday financial services.
Conventional banking: Conventional banking intermediates deposits and loans, commonly using interest as the price of borrowing and saving. Its standard interest-bearing loan model differs from Islamic finance's permitted contract structures.
Gharar: Gharar is excessive uncertainty or ambiguity in a contract, restricted in Islamic commercial law. Limits on gharar shape how clearly Islamic finance contracts specify obligations and outcomes.
Mudarabah: Mudarabah is a partnership in which one party provides capital and another manages an enterprise, with profits shared by agreement. It allocates investment capital and management while linking returns to business outcomes.
Islamic capital markets: Islamic capital markets issue and trade securities designed to comply with Islamic legal principles. They connect Islamic financial structures to corporate and public investment.
Interest: Interest is a charge for borrowing money or a return paid on deposited or invested funds. Islamic finance distinguishes prohibited riba from permitted trade profits, rent, and investment returns.
Maysir: Maysir is gambling or wagering that depends on chance and transfers wealth without productive exchange. The ban on maysir limits speculative transactions in Islamic finance.
Musharakah: Musharakah is a partnership in which parties contribute capital and share profits according to agreement and losses according to contributions. This partnership offers a direct form of shared ownership and business risk.

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