The risks and rewards from the explosive growth in Sharia finance

BOOMING Middle Eastern economies and increasing affluence across the Islamic world are fuelling rapid growth in the $1 trillion (£502bn, E677bn) market in Sharia finance.

BOOMING Middle Eastern economies and increasing affluence across the Islamic world are fuelling rapid growth in the $1 trillion (£502bn, E677bn) market in Sharia finance.

Islamic – or Sharia – finance bans charging interest on loans. Sharia also forbids activities such as gambling and the production and retail of alcohol. Instead of traditional money-lending, Sharia finance is akin to ownership of a stake in a business; the idea is for the “lender” to share in the risks of the business he finances and for debt to be replaced by equity-style financing.

For example, instead of going to a bank to borrow money, an entrepreneur who wants to buy an asset can jointly purchase it with a financier in a mudharabah contract. The “lender” (really a venture capitalist) gets a share of the income in proportion to his ownership of the asset.

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