In the context of the ongoing globalization of the world’s financial markets and the current financial crisis, the relevance of Islamic financial markets and Islamic funds has continuously grown over the past years. Today, an increasing number of transactions and finance products are structured in compliance with the principles of the Sharia. Recent surveys show annual growth rates of 15 to 20 percent for the past five years. This is also reflected by the number of more than 300 Islamic financial institutions existing all over the world and the well over 250 mutual funds whose investment strategy complies with Islamic principles.
Against this background, Sharia compliant financing and finance products attract more and more interest in Europe from both investors and financial intermediaries who would like to understand, make use of and benefit from the structures and products available.
From a conventional finance perspective, major differences between conventional finance and Islamic finance may be seen in the fact that the Sharia requires (i) compliance with certain principles atypical to conventional finance, (ii) (many) finance structures to be asset based and (iii) that all parties to a transaction (must) assume genuine commercial risk (even if it is only for a limited period of time).
This publication is intended to serve as an introduction into the fascinating world of Islamic transactions by summarizing the major principles applicable to, and most common structures of, Sharia compliant transactions. It is, however, not intended to give a comprehensive overview of all structures and products available and the corresponding legal aspects.