Islamic Finance

Information asymmetry in financial exchanges or transactions occurs when one party has more or better information than the other. This asymmetry can create an imbalance of power in transactions, potentially leading to an unfair exchange. A prime example in Western markets is insider dealing (or insider trading), where individuals with access to material non-public information (information that could affect the price of a company’s stock) exploit their knowledge advantage for personal gain. This practice is illegal because it violates securities laws. This illegality is rooted in the unethical nature of such actions, as it breaches fiduciary duty and creates an unfair advantage. Insider trading also contributes to market inefficiency by eroding trust in the market. ...

Related pages Shariah compliance Prohibition of riba - interest Profit and loss sharing Asset-backed financing Gharar - uncertainty Maisir - gambling Murabahah - Cost-plus financing for purchasing goods. Ijara - leasing contracts for assets Istisna - for construction or manufacturing contracts Sukuk - Islamic bonds backed by assets Zakat Halal investments Takaful - islamic insurance

Shariah-compliant investing seeks financial returns by investing in companies that follow Islamic finance principles. Further reading Understanding Shariah Compliant Investment: A Simple Guide - Good Finance What is Shariah-compliant investing? - Pensionbee

Further reading Shariah-Compliant Funds: Definition and Examples - Investopedia Related pages

Further reading What Is Takaful Insurance and How Does It Work? - Investopedia

Gharar is a fundamental concept in Islamic finance, derived from the Arabic word for uncertainty, ambiguity, deception or risk. It is often translated into English as excessive risk, hazard or speculation. In Islamic finance, Gharar refers to transactions where the terms or subject matter are uncertain, leading to a significant imbalance of information - information assymetry - or a high probability of loss for one or more parties. This includes contracts with unknown outcomes, poorly defined specifications, or contingencies that are difficult or impossible to quantify or assess. ...

Istisna is an Islamic finance contract where a buyer commissions the construction or manufacture of a specific asset. The buyer agrees to pay the seller in instalments during the construction or manufacturing process. The buyer finally takes ownership of the asset once the asset is fully completed, constructed and delivered. This differs from a typical Western approach to financing, where payment is often made in full upon delivery or financed through through a loan agreement. Istisna adheres to Islamic principles by avoiding the payment of interest, or riba. ...