Sharia-compliant financing is done by investors who chose to invest their money in a manner that is compliant with Islamic sharia. The basic principle of investing on a sharia-compliant basis is that when you are introducing any leverage, any financing, that leverage has to be compliant. This means you cannot receive or pay interest on borrowed money. In conventional finance, there is a distinction between usury and interest. Regulators in the United States and western jurisdictions regulate and distinguish between interest rates that are considered reasonable and interest rates that are considered usurious. Under Islamic sharia, any interest—even 0.01 percent—is usurious. There is no distinction between acceptable interest and unacceptable interest. So if you are financing a sharia-compliant investor, you have to figure a way to inject that financing other than borrowing and charging interest.
Clarence Sexton | 8/31/2009
