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Modes of Financing

In the Islamic law, modes of financing, and the resulting financial contracts, are governed by those general principles of contracting that are common between all legal systems and societies, although with some variations in their minute details, such as civil aptitude, consent and legal permissibility.

Furthermore, they are governed by principles that cover a specific Islamic view point; they are:

Moral commitment : an Islamic financing institution cannot finance activities harmful to society or that do not have a humanly acceptable ethical foundation aiming at equity, justice and environmental stability

Shariah permissibility : it refers to matters that the Islamic law requires, such as the ban on pork and other swine products, 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

Realism or validity : it means that all financing contracts must be founded on real, not presumed or deemed, transactions or exchanges

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 been taken up by Islam which is upholding them without claiming authorship

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Piero della Francesca, ‘La città ideale’, Italy XVI century