Islamic Financing

Islamic Financing

In KSA all retail financing and most corporate and commercial financing is in the form of Islamic financing.

Under the Shari’ah, when a person lends money the transaction should not generate unjustified income. Islamic finance promotes the concept of profit and loss sharing whereby the financial transaction is a form of partnership. There is a total prohibition on charging interest (Ribah) gambling or speculation (e.e. futures, most derivatives and options), any transactions with an element of uncertainty (i.e. damages for economic loss) and damages other than actual damages (i.e. liquidated damages).

Like most partnerships, the partners share profit and losses on the basis of their capital contribution. In conventional finance there is guaranteed return for a financier but no such guarantee of return for the financier but no such grantee of return for the borrower. However, Islamic finance aims to ensure that the risk of profit and loss is shared