Under which framework is Islamic finance governed?

Under which framework is Islamic finance governed?

• A. Civil Law
• B. Sharia law
• C. Common Law
• D. International Trade Law

Answer: (B)

Islamic finance is governed by Sharia law, which is derived from the Quran and the Hadith, the teachings and practices of the Prophet Muhammad. Sharia law sets forth principles that dictate the ethical and moral framework of financial transactions, emphasizing justice, transparency, and equity. In Islamic finance, the prohibition of interest (usury), excessive risk (gharar), and speculative behavior all stem from these Sharia principles. It allows for profit-sharing arrangements and prohibits investments in industries considered haram (non-permissible), such as those involving alcohol, gambling, or pork. The other frameworks listed—Civil Law, Common Law, and International Trade Law—do not encompass the religiously mandated principles that guide Islamic finance. Civil and Common Law systems are secular legal frameworks prevalent in various jurisdictions, focusing on established legal statutes and precedents. International Trade Law governs cross-border transactions but does not include the religious and ethical considerations intrinsic to Islamic finance. Therefore, Sharia law is the correct governing framework for Islamic finance.

Islamic finance is governed by Sharia law, which is derived from the Quran and the Hadith, the teachings and practices of the Prophet Muhammad. Sharia law sets forth principles that dictate the ethical and moral framework of financial transactions, emphasizing justice, transparency, and equity.

In Islamic finance, the prohibition of interest (usury), excessive risk (gharar), and speculative behavior all stem from these Sharia principles. It allows for profit-sharing arrangements and prohibits investments in industries considered haram (non-permissible), such as those involving alcohol, gambling, or pork.

The other frameworks listed—Civil Law, Common Law, and International Trade Law—do not encompass the religiously mandated principles that guide Islamic finance. Civil and Common Law systems are secular legal frameworks prevalent in various jurisdictions, focusing on established legal statutes and precedents. International Trade Law governs cross-border transactions but does not include the religious and ethical considerations intrinsic to Islamic finance. Therefore, Sharia law is the correct governing framework for Islamic finance.