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What is Islamic Finance?

Islamic finance is a financial system that operates according to Islamic law (which is called shariah) and is, therefore, shariah-compliant. Just like conventional financial systems, Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies. However, these entities are governed both by Islamic law and the finance industry rules and regulations that apply to their conventional counterparts.

The Spirit of Islamic Finince

A core concept of Islam is that Allah is the owner of all wealth in the world, and humans are merely its trustees. Therefore, humans need to manage wealth according to Allah’s commands, which promote justice and prohibit certain activities.

At the same time, Muslims have the right to enjoy whatever wealth they acquire and spend in shariah-compliant ways; they don’t need to feel shame about being wealthy as long as their behavior aligns with Islam.

Influence to Normal Trade

A Muslim believes that Islam doesn’t restrict economic activity but instead directs it toward responsible activity that benefits other people, protects the earth, and honors Allah. In other words, Islam allows for a free-market economy where supply and demand are decided in the market — not dictated by a government. But at the same time, Islam directs the function of the market mechanism by imposing specific laws and ethics.

Core Value of Islamic Finance

Islam and social justice are inseparable. Therefore, social justice is a key concept of the Islamic finance industry. Islam tries to achieve social justice in the economy in many ways:

Promoting adherence to Islam

Requiring zakat

Defining the state’s obligations

Prohibiting usury (interest)

Encouraging shared risk

Source: http://www.dummies.com/personal-finance/islamic-finance/what-is-islamic-finance/