An introduction to islamic finance

3.6 SHARI’AH COMPLIANCE
The central focus of Islamic finance is Shari’ah compliance. 
To ensure compliance a distinctive feature of Islamic 
finance is the establishment of a Shari’ah advisory or 
supervisory board to advise IFIs, Islamic insurance 
companies, Islamic funds and any other providers which 
offer Islamic financial products. The establishment of a 
board, the opinions of which are binding on all IFIs, is 
required to guide the institutions towards Shari’ah 
compliance. An institution cannot claim to be doing Islamic 
financial business until and unless it sets up a Shari’ah 
board (scholars) or committee consisting of qualified 
scholars who are of high reputation and who possess the 
necessary skills.
3.7 UNLAWFUL GOODS OR SERVICES
Another equally important feature is that Islamic finance 
must not be involved in any activities pertaining to unlawful 
goods and services. These prohibited goods and services 
include, among others, non-halal foods such as pork, 
non-slaughtered animals or animals which were not 
slaughtered according to Islamic principles, intoxicating 
drinks, entertainment and pornography, tobacco-related 
products and weapons. Non-involvement is not only limited 
to buying or selling but also includes all chains of 
production and distribution, such as the packaging, 
transportation, warehousing and marketing of these 
prohibited goods and services.
3.8 OVERRIDING PRINCIPLES OF ISLAMIC LAW
Islamic finance essentially refers to Shari’ah compliant 
financial activities. In addition to observing the 
above-mentioned features, Islamic financial products and 
services must not contain any principles, terms and 
conditions which are contradictory to established legal 
maxims or legal principles. These legal maxims are the 
overriding principles and essential parameters of Islamic law, 
widely accepted by Muslim jurists. An example would be the 
principle that the capital in equity-based financing or 
investment cannot be guaranteed by the manager or a 
related partner. An equity contract must be free from 
capital guarantee to reflect the very essence of equity 
investment. In other words, equity investors must bear the 
risk of loss of capital.