Financial Contracts

Financial contracts in the Islamic law are governed - although with some variations in their minute details - by those general principles of contracting that are common between all legal systems and societies; they include: civil aptitude, consent and legal permissibility

Besides, they are governed by principles that cover a specific Islamic view point, such as:

• moral commitment: it means that an Islamic financing institution cannot finance activities harmful to society, such as drugs, alcohol, gambling, porno industry, environmentally harmful products, and any other production or distribution of materials or services that do not have a humanly acceptable ethical foundation. In this regards, Islamic finance share with ethical finance the aims of equity, justice and environmental stability
• shariah permissibility: it refers to matters that the Islamic law requires. These include pork and other swine products and other meats whose animals are not slaughtered in a manner that satisfies the Shariah requirements.This applies also to by-products such as the manufacture of cosmetics. It also includes the prohibition of interest and the ban on speculation
• balance: it requires that the obligations of one party be equivalent to the obligations of the other, so that there is no excessive loading on either ones. This principle rules out excessive overcharge and it stands also against the charge of interest
• realism or validity: it means that all financing contracts must be founded on real, not presumed or deemed, transactions or exchanges. This principle rules out any contract that is based on pure assumptions and hence uncertainty in the conclusion of contracts

Most of these principles have crossed the entire history of mankind with some of them already enunciated by Aristotle. After being endorsed by Hebraism and Christianity, they have taken up by Islam which, therefore, does not claim any authorship

This section provides information on specific financial contracts and covers their features, current developments and controversies. The knowledge and understanding of these contracts is a precondition for any serious involvement in the Islamic finance industry

The challenge of contemporary Islamic finance is indeed to adapt them to the modern requirements without losing their spirit and raison d'être. Furthermore, this section provides links with the institutions that are creating standards for their application