Islamic finance explained
Fourteen explainers, grouped so you can read them in order: what is ruled out, what is used instead, and what that means for the products in front of you.
Group one
The prohibitions
Three ideas do most of the work. Understand them and the majority of product questions become answerable without a scholar in the room, though the final call on your own circumstances is not ours to make.
Prohibition
Interest, and where the line sits
riba
Any stipulated increase over the principal of a loan, however the terms label it. Covers the two classical categories and why both matter to a modern account.
Prohibition
Uncertainty in a contract
gharar
Ambiguity about price, subject matter or delivery. Minor uncertainty is tolerated by every school; uncertainty that turns the exchange into a wager is not.
Prohibition
Speculation and gambling
maysir
Where one party’s gain is the direct result of another’s loss and the outcome turns on chance. Distinguishing this from ordinary commercial risk is the whole question.
Prohibition
Wagering contracts
qimar
The narrower term for a bet, and how it is used alongside maysir when scholars analyse derivatives, prediction markets and insurance.
Prohibition
Prohibited business activity
The sector question: alcohol, gambling, conventional finance, adult entertainment, tobacco and weapons, and why standards disagree about incidental revenue.
Group two
The contract structures
Islamic finance replaces lending at interest with sale, lease and partnership. Each structure asks something real of both parties, and each one fails if that requirement is dropped in practice.
Structure
Cost-plus sale
murabaha
The bank buys the asset and sells it on at a disclosed mark-up. The requirement people miss is that the bank must genuinely own the asset before selling it.
Structure
Lease
ijarah
The owner leases an identified asset and keeps ownership risk. Where maintenance and insurance obligations sit is what separates a lease from a disguised loan.
Structure
Profit-sharing partnership
mudarabah
One party provides capital, the other provides work. Profit is shared by ratio agreed in advance; loss falls on the capital provider. Rates cannot be guaranteed.
Structure
Joint partnership
musharakah
Both parties contribute capital and share profit and loss. The diminishing variant is the basis of most home purchase plans marketed as Islamic mortgages.
Structure
Investment certificates
sukuk
Certificates representing ownership in assets or a venture, not a debt. What the holder actually owns, and who bears the loss, is the test the structure has to pass.
Structure
Mutual protection
takaful
Cooperative risk-sharing offered as an alternative to conventional insurance, and the gharar objection it is designed to answer.
Group three
Practical questions
The questions readers send most often, answered with the reasoning attached rather than a verdict on its own.
How screening standards differ
What AAOIFI, Dow Jones, FTSE and MSCI each test, why the denominators differ, and how to read a certificate's scope before trusting it.
Purification of investment income
How to calculate the impermissible share of a return, the methods standards use, and where the calculation is disputed.
Is my brokerage account permissible
Margin, share lending and interest on idle cash: the three features to check, and what the defaults usually are.
Reading path
Read these four in order
Interest, and where the line sits
Start here. Riba is the prohibition that shapes every other answer, and the definition is narrower than most summaries suggest.
Cost-plus sale
One structure, understood properly. Murabaha makes ijarah, mudarabah and musharakah legible by comparison.
How screening standards differ
Why two apps disagree about the same company, and what to check before you trust either.
Purification of investment income
The practical step most readers have never been shown, and the point at which methods diverge.
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This is educational content, not a fatwa or personalised financial advice. Investment carries risk, including loss of capital. Verify any specific product with a qualified Shariah scholar and a licensed financial adviser before investing.