What You Need to Know about Islamic Finance

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Islamic finance seems to be gaining popularity worldwide. And this is easy to see if the numerous benefits it offers are anything to go with. For starters, Islamic finance is a way of doing financial transactions and banking while respecting Islamic law or Sharia.

So what is behind the success of Islamic finance? What makes Islamic finance special? Why is it growing rapidly? Here are a few things you need to know before leveraging what Islamic finance offers.

Encourages Stability in Investments

Investments  in Islamic finance, is approached with a slower and more insightful decision-making process as compared to conventional finance. It is quite normal for companies whose financial practices and operations that are higher in risk bey kept away by Islamic financiers.

Going with the constant promotion of the reduction of risk, intensive audits and analysis are constantly undertaken. This has the potential to reduce risk and create the space for greater investment stability.

Accelerate Economic Development

It is worth mentioning that Islamic finance most certainly continues to have profit creation and growth as objectives. But they find it ideal to invest in businesses based on their potential for growth and success rather. For this reason, each bank will invest in promising business ventures and attempt to out-perform its competitors in order to attract more funds from its depositors.

This leads to a high return on investments for both the bank and depositors. At conventional banks, this is highly unlikely as depositors redeem returns on their deposits based on a pre-determined interest rate.

Attracts Non-Muslim Investors

While it currently remains uncommon, non-Muslims are beginning to see the real potential for profit in Islamic banking. As a rule, Islamic financial products carry lower risk investment whilst enabling them to earn a profit. This also diversifies their portfolio in order to further reduce their financial risk.

Remember, conventional banks are able to track Islamic financing via international rating systems. By referring to benchmarks that track the financial industry, conventional financiers can easily assess the strengths, weaknesses, and risk of bonds when purchasing Islamic bonds.


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