Islamic finance as an alternative investment
| Feb 23rd, 2010 | Filed under: Hedge Fund Industry Trends, Today's Post | By: Alpha Male |
By: Ranjan Bhaduri, AllAboutAlpha.com Editorial Board & Sabah Rehman, AlphaMetrix Alternative Investment Advisors
Islamic finance is an industry which has steadily gained attention since its establishment in the late 1970s. It is distinct from conventional finance in its outward adherence to Islamic law (shahria’h). One such distinction, as provided here, is that it prevents the use of interest, given the notion in Islamic texts that making money from money constitutes usury. Islamic finance is based on the belief that wealth should be created only through legitimate trade and investment in assets. Since the 2008 financial crisis, it has understandably gained in popularity given that it generally forbids both debt trading and excessive risk taking. More…
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For a layman:
If I am investing in a financial institution, it makes sense that according to the Islamic Financing I would have to bear both profit and loss in any investments that entity makes on my behalf.
However, how does it work in the case of leases and loans? What incentive would that entity have to lend me money if I have to only return the exact same amount ( or equivalent according to currency value depreciation) that I received. I would think that they would offer these services only if they are getting some sort of financial gain from them.
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