Research Article Open Access

The Relationship between Traditional as well as Modern Modes of Financial Instruments for International Market through Islamic Finance

Abstract

Islamic financial system compared to western conventional system is related to the religion of Islam. The principles of Islamic finance are based on three main factors which are mentioned in the Quran and are an important part of Islamic jurisprudence, such as Riba, Gharar and Maysir. Islamic commercial law is based on three modes which serve as the basic blocks for complex financial products. These three modes are partnership based, trade based and rental based modes of financing. These three traditional modes of financing are dependent upon the size and limitations of entire market and desires of their target customers. The modern modes of financing consist upon Islamic Insurance (Takaful), Islamic financial derivatives, Islamic bonds (Sukuk) and Istisna. Furthermore, there should not be pure economical interest in transactions; it must contribute to the social harmony. It shows balanced between equity and debt and the trade of debt must be avoided which is explicitly expressed in the pillars of Islamic banking.

Shabbir MS, Ghazi MS and Akhtar T

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