Dr Oussama Tabbara, Gulf Venture Capital Association
September 2008
Shariah is Islam’s legal system. It differs from the legal traditions of the Western world in that Shariah represents a comprehensive system for all aspects of life. Its principles strike a balance between the interests of the individual and society. Universally, in any society, investment is the foundation of economic activity.
Islamic finance (IF) constitute three basic concepts: asset-based finance, partnership, and shared risk and reward. Profits form the basis of the IF system. It allows both the risk capital provider and the party that uses the capital to make profits, but the manner in which this is done is subject to conditions. For example, certain actions are prohibited because they are harmful to participants in the business or the economic activity. Profits must be shared by the provider and user of capital; both need to assume risk and share the rewards. Hence, in financial transactions, the interpretation of the Shariah applies to the products, processes and the systems.
