What is Islamic Finance and What Can It Do?

A well-established financial system plays a vital role in the growth and development of an economy. The Global Financial Crisis of 2008 raised serious concerns about the operations of the conventional financial system. Consequently, Islamic Finance emerged as an alternative— presenting itself as not only resilient enough to absorb shocks but also capable of providing fair and efficient ways of financial intermediation. Islamic finance represents a fundamental departure from conventional interest-based and speculative practices, as it relies completely on real economic transactions such as trade, investment based on profit-sharing, and other ways of conducting business. Unlike the conventional financial system where money is commonly considered a commodity, under Islamic finance the sole purpose of money is to measure the value of goods and commodities. One of the major differences between the conventional and Islamic financial systems is that the latter does not allow activities based on interest payments.

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