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reated for any thing, be it a thin air, there will be a demand and supply for it on speculative grounds, exactly as people exchange indices, in a fantasy-created pure speculation-based index market, although indices are neither real assets

 

nor goods or services! We must remember that the Shari’ah recognizes real things and real growth whether by the nature of a real asset or by the effect of market forces on real assets, goods, or services.

 

Additionally, all real things/assets that may grow may also loose substance or value and the owners of such things/assets are exposed to losses exactly by virtue of the same argument that justifies their entitlement to increments. But a debt, among all assets, is not liable to decrease and does not expose its owner to such kind of losses. brush aside the issue of default because every debt can be secured by all kinds of guarantees and collaterals. Additionally, the nature of default risk is different from the risk of increase and/or decrease that result from the interaction of market forces. A default risk is of the kind of a faulty product or a product that does not maintain its normal characteristics. A defaulted debt is like delivering rotten apple in a sale contract that is very different from the price risk that affects the owner of the apple. This is why the default risk is compensated by a risk premium over and above interest that is called “the price of money.

 

We will leave the issue of Riba at this point to look into the alternative financing contracts and we will revisit it when we will discuss the characteristics of the alternative financing contracts.

 

Alternative financing contracts and their characteristics

 

Not withstanding the several attempts to encode the Shari’ah, the fact is that its bulk remains not coded in the form of articles of law but its rulings are found in the writings of Shari’ah specialists through the centuries as Islam does not establish a religious hierarchy that is authorized to give the law. We will study the Shari’ah alternative financing contracts in an attempt to understand their essential characteristics and find out more about the Islamic financing principles and rationale of the prohibition of interest. It has become known over the last four decades of theorization and practice that the Shari’ah financing contracts are of three major kinds: Sharing-based, sale based and lease based.

 

On the other hand, from a historical point of view Islamic financing products can be classified in two categories: 1) classical contracts that existed throughout centuries and are derived from the practice of the Prophet’s community in Madinah; and 2) hybrid contracts that are developed over the past half a century and are practiced in contemporary Islamic finance and banking.

 

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