Back to basics: Shari’ah principles

We take you back to the credit basics to review everything you thought you already knew but were too afraid to ask ... Khalid Howladar, chairman of the Middle East co-ordination committee at Moody's in London, runs through the Shari'ah principles that govern Islamic finance

Shari'ah requires that financing should only be raised for trading in, or construction of, specific and identifiable assets. Trading in 'indebtedness' is prohibited, so the issuance of conventional bonds would not be compliant as they are usually traded and represent interest-based funding for general corporate purposes. A non-interest bearing loan, however, could be traded if priced at par value.

All sukuk (bond) returns and cashflows should be linked to assets purchased, or those generated from