A Review of Islamic Finance

This chapter explores the concept of financial systems and Islamic finance. Financial systems connect lenders and borrowers through institutions and markets, channelling funds. Key players include banks, insurance companies and investment banks. Islamic finance, adhering to Islamic law (Shari’a), offers an alternative financial system. Core principles include prohibiting interest (Riba), promoting risk-sharing and ethical responsibility. Financial instruments are designed to comply with these principles. The chapter looks into Islamic financial instruments, highlighting their differences from conventional instruments. Examples include Musharaka (partnership) and Sukuk (Islamic bonds). The historical development of Islamic banking and finance is also explored, tracing its roots back to the Prophet Muhammad's era and its recent surge due to factors like the desire for Sharia-compliant financial instruments.