Continuation
SUMMARY
In
the paper first section illustrates the main principles underpinning Islamic
finance.
These
can be summarized as follows.
The
first principle dictates that paying interest is prohibited.
As
a result, Islamic banks have to use contracts that:
§
create exposure to the real sector;
§
and must therefore ensure efficient risk
management.
The
second principle involves:
§
the profit;
§
and loss-sharing
concept.
Parties
to a financial transaction must share both the risks and the rewards that may
be attached to it.
In
this way, excessive losses and profits are minimized.
From the research
paper of European Central Bank
(Authors:
F.Mauro, P.Caristi, S.Couderc, A.D.Maria,
L.Ho, B.K.Grewal, S.Masciantonio, S. Ongena and S.Zaher)
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