A Basic Guide to Contemporary Islamic Banking and Finance

Mahmoud Amin El Gamal
Rice University
June 2000


Why "Islamic Finance"?
Prohibitions of Riba and Gharar
The prohibition of Riba
Debt re-sale
The Prohibition of Gharar
Obeying the Law
Permissible Financing Methods
Cost plus sales (murabaha)
Credit sales (bad` ba thaman 'ajil)
Leasing ('ijarah, or 'ijar)
Partnerships (musharaka and mudaraba)
Islamic forwards (salam and 'istisna`)
Permissible Investment Vehicles
Investing in equities
"Fixed income" funds
Permissible Insurance Alternatives
Prohibition of financial insurance
Cooperative insurance
Answers to Commonly Asked Questions
Trading in stocks
Interest on bank deposits
What is the different

2000 by Mahmoud El Gamal, All rights reserved. The author is Professor of Economics and Statistics, and holder of the Chair in Islamic Economics, Finance and Management, at Rice University, Houston, TX 77005. elgamal@rice.edu / http://www.ruf.rice.edu/~elgamal