Islamic Fintech

FWD and 1337 are hosting two forthcoming Islamic Fintech events: market opportunity on Feb 9 and a deep dive on Feb 23, 2022. Here's a very rough survey on some Islamic finance terms:
  • Riba - Interest or usury. Example: a loan from a loan shark balloons from $ 1K to $ 2K in a week. The lender takes advantage of the desperation of and lack of knowledge by the borrower to unreasonably earn $ 1K. As serious as robbery but legally not taken to be so because the loan shark had gotten the borrower to somewhat agree to the loan.
  • Mudarabah - Lender provides the capital, borrower provides the labour (or entrepreneurship). The lender does not charge interest but takes a share of the profit from the business instead. For example, during a lockdown, in conventional banking, the borrower must continue to service interest payments. In a mudarabah, if the business is suspended and no profits derived thereof, no payment to the lender is applicable.
  • Musharaka - Risk sharing [?]. For example, one often reads in the news of abandoned housing projects, where the bank pays the developer, the developer absconds, but the borrower must continue to service the loan. In a risk sharing model, the bank takes a more substantial portion of the risk since it is in a better position to assess the developer and work-in-progress before releasing funds.
  • Sukuk - Islamic bond. Conventional bonds are just IOUs and not collateralized, whereas a sukuk is secured against assets.
  • Gharar - Financial products with an uncertain or opaque future are prohibited.