Sharia Law in Finance

I have learned about Sharia Law before in my finance classes because of the impact it has on international finance. The articles provided in our Islamic Law activity did not directly address the impacts Sharia Law has on the world of finance, so I wanted to provide some background information for those who might want to learn more. An easy-to-read article published by Investopedia about Sharia Law and the implications it has on finance is linked here.

Islamic banking is handled much differently than banking in other types of the world. There is a lot of technical differences that pertain to the way capital can be raised, the types of investments that are permitted, and the way money is handled. The biggest component and the “big picture” of Islamic banking pertains to interest. As stated in the article linked above, “central to Islamic banking and finance is an understanding of the importance of risk sharing as part of raising capital and the avoidance of riba (usury) and gharar (risk or uncertainty).” Islamic law does not view money as an asset itself, which means it prohibits someone from earning a profit from lending money. Therefore, there is little to no interest because Islamic law discourages earning money from lending. Islamic finance encourages ethical practices. Those with careers in international finance deal with the impact of Islamic law on finance every day. However, for the common person in America, we rarely see or feel the impact of Sharia Law on the day-to-day finance we deal with.