6.8 Religious attitudes to financial products

Question 1

What are the two sources that Islamic faith is based on?

Answer 1

• The Qur’an (the holy book of Islam)

- The Sunnah (comprises the teachings of the Prophet Muhammed)

Question 2

A Sharia-compliant financial services provider must have an ethics committee which does what?

Answer 2

Assesses the ethical aspects of its loans and investments

Question 3

What are the core principles of Sharia-compliant finance?

Answer 3

• Prohibition of interest (Riba)
• Prohibition of Gharar (uncertainty in business transactions) - banks and individuals are forbidden to base transactions on an excessive underlying risk

Question 4

What happens in a Murabaha mortgage?

Answer 4

• The lender may buy the house from the seller and then resell it to the buyer at a profit
• The buyer will repay in installments, but no penalties will be charged for late payment

Question 5

What happens in an Ijara mortgage?

Answer 5

The bank buys the property then leases it to the customer for a period of time, at the end of which the property will belong to the borrower

Question 6

Example of an exclusively Sharia-compliant bank in the UK:

Answer 6

Al Rayan Bank

Question 7

Example of a bank providing a Sharia-compliant product:

Answer 7

Lloyd’s Bank’s ‘Islamic Account’

Question 8

Why did the head of the Church of England, Justin Welby, criticise payday lenders in 2013?

Answer 8

For their high interest rates and fees, revealing that the Church intended to encourage the expansion of credit unions as an alternative source of short-term finance