Overview of Islamic Finance
- Introduction
The Islamic financial system generally refers to financial market transactions, operations and services that comply with Islamic rules, principles and code of practices. These principles and rules entail some types of activities, risks or rewards to be either prohibited or promoted. Islamic laws and rules are also known as Sharia’ that includes faith, economic, social, political and cultural facets.
Islamic finance started in the 7th century, when the Quran prohibited interest (riba) and encouraged profit-and-loss sharing agreements. Modern Islamic finance started in early 1960s in Egypt with the establishment of the Mit-Ghamr Islamic Saving Associations (MGISA) in addition to the Malaysian Hajj Fund via Pilgrims Fund Corporation. This Hajj fund enabled Malaysian Muslims to save gradually and invest in Sharia compliant instruments for the purpose of funding their Hajj expenses. In the 1970s and 1980s, modern Islamic financed developed and many Islamic banks started rising in Muslim countries and especially GCC countries. In Lebanon, the law # 575 issued in 2004, allowed the establishment of Islamic banks in Lebanon that shall be governed and regulated by all legal and regulatory provisions in force in Lebanon, particularly those related directly or indirectly to banks, including the Code of Land Trade, the Code of Money and Credit, and the Banking Secrecy Law. Usually, in Islamic banks, there is a Sharia Committee that supervises the bank’s operations and products and gives its legal opinion (fatwa).
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