What Does Shariah Compliant Financing Mean?

What Does Shariah Compliant Financing Mean?

By March 30, 2023 January 17th, 2024 Blog

Shariah compliant finance means that a financial transaction or product is in line with Islamic law. (Shariah). Shariah is the moral, ethical, and legal rule that tells Muslims how to act in all parts of their lives, including commerce and money.

Shariah-compliant financing is based on the idea that risk and reward are shared, and it is forbidden to pay or receive interest. (Riba).

Shariah-compliant financing structures, on the other hand, are meant to give investors and borrowers a fair return on their money while also following the rules of ethical and socially responsible investing.

Some common methods of funding that follow Shariah law are:

Mudarabah:

Mudarabah is a type of cooperation where one partner puts up the money (called “rab al-maal”) and the other puts in the work. (known as the “mudarib”). The rab al-maal gives the money to start a business, while the mudarib runs the business on a daily basis. Profits are split between the partners in a way that has already been decided, while losses are always paid for by the rab al-maal.

Murabahah:

Murabahah is a type of cost-plus financing in which the bank buys an asset for the borrower and then sells it back to the borrower at a higher price. This markup shows how much money the bank made from the transaction. The borrower pays the bank back over time in installments that add up to the initial cost of the item plus the markup.

Musharakah:

Musharakah is a type of business partnership in which two or more people put money into a firm together. Profits and losses are split between the people involved based on how much they own of the business. This sort of funding is commonly utilised for big projects that need a lot of money.

Sukuk:

Sukuk is Shariah-compliant bonds that provide investors with a part of the income made by the asset they are investing in instead of interest payments. The income made by the asset is split among the investors based on how much of the Sukuk they own. Large infrastructure projects including toll highways, airports, and power plants are commonly financed with Sukuk.

Overall, Shariah-compliant financing is designed to provide investors and borrowers with a socially responsible and ethical alternative to traditional forms of financing. These financing structures are based on shared risk and reward, and are designed to promote long-term sustainability and ethical investing practices. You can learn more about the advantages of Shariah Complaint Financing here.

Learn More About Islamic Shariah Compliant Financing

About Limra Assets

Limra Assets is a Shariah-compliant financing solutions financier that provides loans for property financing, SME businesses loans and gold investment. We offer a range of financing options to help individuals and businesses, including alternative financing for businesses that are unable to obtain funds. Our goal is to provide access to funds for investments in a Shariah-compliant manner that focuses on transparency, customer service, and competitive rates, Limra Assets can be a valuable partner in your gold investment journey.

If you’re interested in learning more about Limra Assets and our Shariah-compliant financing solutions for property purchases, gold purchases or business loans, please contact us for more information.

Disclaimer:

It is important to note that taking out a loans for any purchases and gold investment, whether through Limra Assets or any other lender, carries risks and should be approached with caution. It is important to carefully consider your financial situation and investment goals before taking out a loans, and to ensure that you fully understand the terms and conditions. Additionally, investing in gold carries its own risks and should be done with the guidance of a financial professional. This information and all external links are provided for educational purposes only and should not be considered financial advice.