London School of International Business (LSIB)

What are the main sources of Islamic law that govern Islamic finance?

Islamic finance is governed by a set of principles derived from the Islamic legal framework known as Sharia law. These principles guide the financial transactions and activities of Muslims around the world. The main sources of Islamic law that govern Islamic finance are:

1. The Quran	The Quran is the holy book of Islam and is considered the primary source of Islamic law. It provides guidance on all aspects of life, including finance and economics. The principles of Islamic finance are derived from the Quranic teachings, which emphasize fairness, justice, and ethical behavior in financial transactions.
2. The Sunnah	The Sunnah refers to the teachings and practices of the Prophet Muhammad. Muslims look to the Sunnah for guidance on how to live a pious and ethical life. The Sunnah provides additional insights into Islamic finance and helps to interpret the teachings of the Quran in a practical context.
3. Ijma	Ijma refers to the consensus of Islamic scholars on a particular issue. When there is a lack of clear guidance from the Quran and Sunnah, scholars rely on ijma to make decisions. In the context of Islamic finance, ijma plays a crucial role in resolving complex financial issues and ensuring compliance with Sharia law.
4. Qiyas	Qiyas involves the process of analogical reasoning to derive new rulings based on existing principles in Islamic law. In the realm of Islamic finance, qiyas is used to apply established principles to modern financial practices and products. It helps to ensure that new financial instruments comply with Sharia law.

These sources of Islamic law provide the foundation for the principles of Islamic finance, which include the prohibition of interest (riba), uncertainty (gharar), gambling (maysir), and unethical investments. Islamic finance promotes ethical and socially responsible financial practices that are in line with Islamic teachings.

By adhering to the principles of Sharia law, Islamic financial institutions offer a unique alternative to conventional banking and investment services. They provide products and services that are structured to comply with Islamic law and cater to the needs of Muslim customers who seek financial solutions that align with their religious beliefs.

Overall, the main sources of Islamic law that govern Islamic finance serve as a guide for ethical and responsible financial practices that promote fairness, justice, and social welfare. By following these principles, Islamic financial institutions contribute to the development of a more inclusive and sustainable financial system that benefits individuals, communities, and society as a whole.