1	Introduction to the principles of Shari’ah-compliant finance Abdul-Haq Mohammed Partner, Trowers & Hamlins January 2008
2	Islamic law Qur’an Sunnah Shari’ah
3	Humans Scholars Custom/precedent Fatwa Qada
4	Interpretation Ijtihad Fiqh Fiqh al-mu’amalat General principles v detailed description
5	Shari’ah Boards Fatwa v Qada Authority and reputation Financial expertise Regional variations International standards
6	Fiqh al-mu’amalat Contracts Justice Protection of property – one of five values Permissible unless prohibited Public interest
7	Fiqh al-mu’amalat (continued) Riba Gharar/Jahala Unfair advantage No trade in prohibited activities Speculation
8	Riba Money on money Strongly condemned Trade encouraged Profit v interest Partnership and risk-sharing
9	Practical effects Lending on interest is not allowed Risk cannot be passed entirely to borrower Financier should invest rather than lend Options, secondary markets in debt instruments? Adaptation of old structures to new situations
10	Modern shari’ah-compliant finance Attempt to discover “islamic” alternatives Constraints of conventional market Dominance of conventional institutions Artificial/synthetic mechanisms Is risk shared? Form over substance
11	Mudaraba Silent partnership A provides capital B supplies effort Profit share agreed Loss borne by capital owner Syndicated facilities
12	Musharaka Shared partnership Profit and loss shares agreed Musharaka mutanaqisah – Diminishing partnership – one party buys out partner Asset purchase
13	Murabaha Customer describes to the bank what he wants Bank purchases from the vendor at spot price Bank sells to the customer at mark-up on deferred basis Common form of short-term investment for retail banks
14	Ijara Bank purchases asset Asset leased to the customer Customer can acquire asset by way of sale at nominal price or by gift Ijara wa iqtina – lease with promise to purchase Equipment finance
15	Istisna’a
16	Sukuk
17	Tawarruq
18	Commodity murabaha
19	Conclusion
20	Contact Abdul-Haq Mohammed – Partner Trowers & Hamlins PO Box 3012 Manama Kingdom of Bahrain Tel: + 973 17 515600 Fax: + 973 17 535616 amohammed@trowers.com