Answer: Islamic Financial Institutions finance any type of business as long as the business is permissible under Islamic principles and is deemed viable. Islamic Financial Institutions will not finance or invest in the forbidden sectors of the economy; examples are such sectors that promote Pornography, Alcohol, Tobacco, Gambling etc.

Answer: Yes, Islamic Financial Institutions offer a range of consumer finance facilities for housing, vehicles, white goods etc. The sale and deferred payment contracts based on pre-arranged installments and operational leases are typically used in consumer financing.

Answer: Islamic financial Institutions have developed several instruments that suit the dictates of the Shari’ah, some of the instruments are Mudaraba, Musharaka, Murabaha, Ijarah, Istisna, salam, Urboun etc.

Mudaraba: Mudaraba is a contract in profit-sharing, with one party providing funds and the other his management expertise. Profits are shared in ratios agreed in advance. Typically, a greater part of the profit goes to the financier.

Musharaka: Musharaka is described as a joint venture between the Islamic Financial Institution and an individual or a business entity. Both parties bring capital into the business and profit or loss is allocated pro-rata according to capital invested. Investing in shares in permissible stocks as well as venture or private equity are all examples of musharaka investments.

Murabaha: Murabaha is also known as cost plus profit or a purchase and resale agreement. The financial institution buys assets that a client has expressed interest in, and then sells it to him at a disclosed mark-up on a deferred payment basis. The client can pay in installments and on a deferred date as agreed in advance by the two parties thereby creating ease for the user of funds. The profit or mark-up earned is an absolute known sum that cannot be varied or increased with time.

Ijarah: Ijarah is leasing of assets for a rental charge subject to a number of conditions, among them are:
- there should be transfer of usufruct.
- the lessor (person granting the lease) bears the liabilities of ownership.
- the purpose for which the asset is used shall be clearly defined.
- the rent needs to be specified and cannot change without mutual consent.

In conventional Financial lease, the lessee (the person to whom the lease is granted) has to make the interest payments to the lessor whether he gains benefit from the property or not. If the leased property is damaged, the interest payments still have to be made. So the ownership risk does not lie entirely on the owner’s hands. Ijarahs, on the other hand, clearly distinguish between ownership and usufruct or the use and profit of a thing, and stipulates that rental rates be known and agreed upon beforehand. The central component of a valid Ijarah agreement is the appropriation of risk.

Istisna: Istisna is a special form of sale where an item is transacted before its existence. The purchaser orders the manufacture of a certain item in regard to fixed agreed specifications and fixed price. Istisna is often used for project and construction financing.

Salam: Salam is a sale whereby the seller undertakes to supply some specific goods of specific quantity to the buyer at a future date in exchange for an advanced price paid fully on spot. This type of agreement is commonly applied for agriculture financing.

Answer: At first glance, there does not seem to be a difference between the Murabaha (cost plus markup) financing instrument and a conventional financing instrument especially when everything goes well and there are no hitches. The difference usually becomes obvious when things go wrong. In Murabaha, the financier has to take ownership of the asset, before he sells it to the client. The risk at that time belongs to him. The goods could get stolen, damaged or the client may refuse to buy from him and there is no forcing the client to buy. When things go wrong like this, the difference between conventional financing and Islamic finance becomes glaring. Another critical difference is that the borrower knows the absolute value of the mark-up in advance. Say N10,000. This amount cannot change even if prices change or the borrower is delinquent and late in paying. With conventional finance, the borrower is only aware of the interest rate he will be charged. The final absolute sum he will eventually pay will only be known at the end of the transaction and is unlimited.

Answer: Islamic mortgages are permissible. Since interest-bearing mortgages are prohibited, Islamic mortgages are structured based upon long established Islamic financing principles of either Ijara or Murabaha. Ijara arrangements are based upon a hire-purchase concept while Murabaha is based upon a deferred payment sale financing arrangement.

Answer: Islam does not forbid fixation. It is permissible to fix profits, rents, prices, installments plans etc. but it is forbidden to exchange an amount of money for a larger amount. The unlike exchange of like moneys create riba. But exchanging assets or services for money and money for assets or services is entirely permissible. So the problem is not whether the interest rate is fixed or floating, but the interest itself.

Answer: Yes. There are various forms of security employed. Collateral, guarantees etc. The use of collateral is not different from conventional banking. The absence or presence of security reflects on the level of risk and the returns to be fixed by the Islamic institution. The subject matter of the contract itself often serves as collateral.

Answer: This returns to the basic principle of asset and service backing. Stocks invest in real assets and actual services. Gambling invests in nothing. Stocks provide risk-based returns based on public information, gambling provides only uncertainty, and the distant prospect of huge gains based entirely on chance. To the casual observer ‘buying low and selling high may resemble gambling, but Islam does not stipulate at what price commodities should be bought and for how long they can be held. What is important is what is actually bought and sold. Provided the main businesses of the company is permissible, the company owns some illiquid assets and the investor removes the proportion of his profits that correspond to the company’s interest earnings, then purchasing of stocks is permissible.

Answer: Yes. As many of the Islamic instruments are asset-based. Such as Ijarah (leases). It is possible to securitize them and create asset-backed securities, which can then be traded.

Answer: Credible Islamic Financial Institutions have a Shari’ah Advisory Board made up of reputable scholars well versed in Islamic laws, principles and traditions as they relate to economics and finance and are also well versed in conventional economics and finance. The Shari’ah board directly represents the interest of the investors and the users of funds. The board makes sure that the necessary screens are carried out on the investment universe. They also certify that financial products are permissible and operations are carried out according to Islamic principles. The Shari’ah Advisory Board submits a written report to the shareholders to the effect that it has discharged its obligations and that all the Islamic Financial Institution’s investments and business activities conform to the Shari’ah.

Answer: The relationship between Islamic Financial Institutions and their customers is not that of debtors and creditors and vice-versa, but one of participation in risks and rewards. There is no fixed return on the funds invested with Islamic Financial Institutions. Similarly, there is no previously fixed return on funds provided by the Islamic Financial Institutions. The return is decided for both parties by the profit realized from the transactions in the ratio of the capital invested or pre-agreed ratio of profit sharing.