Basics of Islamic Finance

Trace the development of Islamic finance, its parallel growth with conventional and sustainable ethical finance, and its long history from fourteen hundred years ago to modern times.

Trace the early history of Islamic finance from the sixth to the twelfth century, highlighting daraba contracts, partnership forms, self instrument with certificates of payment obligation, and the gold timeline.

Trace the foundation for modern Islamic finance history from the early 20th century, outlining daraba contracts and Meribel costs plus profit contracts, and the emergence of mortgages and international trade.

Describe the sources and classification of Islamic contract law and how sharia compliant contracts govern financial products and services, prohibiting gambling and speculation while encouraging charity and moderation.

Discover how scholars use consensus, primary sources, and analytical reasoning to derive rulings on emerging issues in Islamic finance, with analogy and a Financial Review Board deciding on new products.

Explore Islamic contract law by distinguishing unilateral promises, bilateral promises, and contracts, and explain the six elements of a valid contract, including offer, acceptance, subject matter, and parties' consent.

Explore how contract validity in Islamic finance depends on competence and authorization, distinguishing enforceable, suspended, and void or avoidable contracts, and how unlawful terms or unauthorized agents affect legality.

Explore unilateral contracts in islamic finance and distinguish them from unilateral promises. These contracts transfer ownership without any price and involve gifts, hiba, hasana, and charitable intent.

Identify Islamic financial instruments used by Islamic financial institutions and distinguish asset-based financing from trade financing, including loans, credit cards, mortgages, and business loans.

Explore mudarabah, a profit-and-loss sharing partnership where the investor provides capital and manager runs the project, sharing profits by an agreed ratio and bearing losses unless the manager is negligent.

In musharakah, a bank and clients form a joint venture, an equity participation instrument, sharing capital, labor, and entrepreneurship.

Describe murabaha as a bank-led trade financing where assets are sold for cost plus disclosed profit, with upfront known cost and profit and installment payments after delivery.

Apply Istisnah to align construction projects with fixed price and agreed specifications, enabling buyer withdrawal if specs are not met and flexible payment schedules for project and trade financing.

Explore salam, a sharia-compliant financing method for future delivery goods, where upfront payment is made and the seller must own and specify the product quality and delivery date.

Explains tawarruq, a sharia-compliant instrument where a buyer buys a commodity from a bank on a cost-plus-profit basis and sells it to a third party for spot payment.

Explore the differences between conventional and Islamic banking, and describe how Islamic banks use profit-and-loss sharing and sharia-compliant contracts to manage deposits, investments, and lending.

Examine the primary function of commercial banks—receiving deposits and using funds to earn income—across conventional and Islamic banks, including checking, savings, investment, money market, time deposits, and profit-loss sharing loans.

Explore the Islamic capital market, its Sharia-compliant investing, and its parallel operation to the conventional market, enabling debt and equity transactions through suitable vehicles.

Trace the evolution of Islamic capital market instruments from early bonds to sukuk, including Hasana-based contracts, and the emergence of sharia-compliant funds and derivatives.

Learn how to filter investments for Sharia compliance by avoiding gambling, prostitution, pornography, alcohol, tobacco, pork, illegal drugs, and other prohibited industries, and evaluate margin trading, options, and futures.

Explore Islamic capital market products, growth rates of 12-15% annually, and institutions like the International Islamic Financial Market and Malaysia International Islamic Financial Center.

Explore how the Islamic capital market offers sharia-compliant assets and contracts to diverse global investors, fueling 12-15% annual growth in a one-trillion-dollar ecosystem of sukuk, funds, and Islamic banking.

Define sukuk and explain its structure as an alternative to conventional bonds. Identify types of Islamic capital market instruments, including sharia-compliant equities and sukuk, and note AAOIFI's definition.

Compare conventional bonds with sukuk, highlighting fixed interest versus profit sharing, emphasize sharia-compliant asset ownership, and partner-based investment structures.

Examine sukuk listings and the roles of underwriters, trustees, SPVs, Special Focus Group, and investors as they navigate global exchange listings, ethical debates, and the conditions for bond issuance.

Set up the general structure for sukuk issuance by establishing a special purpose vehicle, a separate, bankruptcy-remote entity that holds assets for investors. The SPV buys unsold portions.

Sukuk al-mudarabah pools investor funds through an SPV to finance Sharia-compliant ventures, with profits shared between investors and the operator per the contractual terms and a potential management fee.

Explore Sukuk al Ijarah, an asset-backed rental contract where investors own the asset and earn rents, with an SPV leasing to the operator and distributing income.

Explore sukuk musharakah, where investors fund a joint venture via an spv, share profits and losses under a contract, and profits flow to the spv and operator.

Explains sukuk al istisna as a contract where a manufacturer completes a construction project and delivers it to the buyer, with proceeds managed by a trustee for investors.

Explore innovative structures in Islamic finance based on hybrid curricula and agency arrangements for investment decisions, with emphasis on intangible assets, environmental credentials, and social responsibility under Islamic contracts.

Examine the necessity of Islamic insurance (takaful), differentiate it from conventional insurance, and explain how Islamic risk reduction, guided by trust in Allah, aligns with Sharia.

Conventional insurance is not accepted in Islam due to Shariah prohibitions on uncertainty (gharar) and gambling (maisir). The contract leaves insurer and insured outcomes uncertain, with premiums and unpredictable claims.

Differentiate conventional insurance and Islamic insurance by contrasting risk transfer between policyholders and the insurer, noting conventional models are unrestricted while Islamic insurance emphasizes compliant, policyholder-aligned operations.

Explore takaful, the islamic finance model where members contribute to a shared fund to share risk and avoid profit, and see how definitions adapt to various corporate structures.

Explore takaful's cooperative risk sharing, mutual protection, and solidarity as participants contribute to a common fund, share surpluses, and uphold mutual responsibility across the group.

Takaful pools policyholder contributions into a fund managed by stockholders, allocates surplus after expenses, and Islamic scholars ensure sharia compliance.

Explore the characteristics of takaful, including sharia-compliant funding, gifts from policyholders, and a fund that helps members in need, with no interest payments to stockholders.

Explore takaful governance structures where policyholders are principals and operators act as agents, using partnership and principal-agent contracts to manage and invest capital funds.