Islamic finance is a system of finance based on Islamic law, or Shariah. It aims to achieve economic and social justice in all financial matters. In contrast to conventional finance, Islamic finance takes into account the moral consequences of financial transactions, ensures that financial contracts are fair and equitable, and guarantees that financial rewards are correlated with the level of risk and responsibility borne by all parties – Islamic finance is commonly known as “ethical finance” or “participatory finance” for this reason.
An industry on the horizon, Islamic finance has seen rapid growth in the past three to four decades. This growth can be attributed to a growing Muslim population, which is also the fastest growing consumer market, and the fact that Muslim-majority countries endowed with natural resources have very high liquidity. Islamic finance has also attracted and benefited from other groups such as international institutions that helped develop its regulations and improve its products and services. With the recent financial crisis, Islamic finance is gaining even more attention world-wide as an alternative financial system.