Basic Principles, Values and Ethical Dimensions of Islamic Banking & Finance
This domain tests whether you can state the prohibitions and the positive values that define Islamic banking, trace the industry's institutional history, and name the bodies that set standards today.
The prohibitions
- Riba - a predetermined increase on a loan (Quran 2:275–279; 3:130). Fiqh adds riba al-fadl: excess in a hand-to-hand exchange of the six ribawi commodities.
- Gharar - excessive uncertainty in object, price or delivery; minor gharar is tolerated, major is not.
- Maysir/qimar - gambling and pure speculation (Quran 5:90).
Positive values
- Maqasid al-Sharia: protecting religion, life, intellect, lineage and wealth.
- Asset and enterprise backing: money is a medium of exchange, not a commodity.
- Risk sharing, mutual consent (taradhi), transparency, justice, ihsan.
- Wealth must be productive; zakat is redistributive.
History and institutions
Mit Ghamr savings bank, Egypt, 1963; Dubai Islamic Bank and the Islamic Development Bank, 1975; Pakistan 1979 and Iran 1983 mandated full Islamisation. Standard setters: AAOIFI (1991, Bahrain) for accounting, sharia and governance standards; IFSB (2002, Kuala Lumpur) for prudential standards; IIFM for documentation; CIBAFI for advocacy.
Worked example
A customer seeks $100,000 repayable at $110,000. The $10,000 is a fixed increase for time - riba al-nasi'ah. The bank instead buys goods for $100,000, bears ownership risk, and sells them to the customer for $110,000 payable in 12 months, disclosing cost and profit. The return now attaches to a sale, not to a loan.
Traps
Profit is not automatically riba, but calling interest 'profit' does not cure it; a guaranteed return with no asset or enterprise behind it fails the test.