Since the 1970s, theMiddle Eastand other Islamic countries migrated to Islamic banking, a form of banking based on the Canons of the Qur’an. This form of banking has taken root among the Islamic countries with Moody’s estimating that the investment in Shariah banking was closing in on US$5trillion.
Investment in Islamic finance, as it is normally termed as, is based on cultural and religious practices of the Muslim community, with the most significant distinguishing factor from other forms of finance being the emphasis on equity investment and risk-sharing. Islamic finance is hinged on productivity of the asset in which the investment is done, with certain restrictions on the payment and receipt of interest. In addition to the other aspects of the banking charters, Islamic finance operates in accordance to the Islamic Shariah.
Islamic finance is championed as being superior to the conventional financial systems owing to the fact that investments are normally channeled towards less-risky destinations (Pradhan, n.d). Emphasis on the productivity of the assets in which the investment is done is compounded by emphasis on the non-interest nature of the investment since incase the investment is not productive; no interest accrues on the asset. As a result, this accrues immunity from the risks and problems appended to operations using the conventional finance.
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