Islamic Finance protects consumers in many ways. The most important features are its freedom from Riba, Gharar, Maysir, and avoidance of trading impermissible goods and services. Furthermore, Islamic Finance, at its core, promotes the principle of justice and equity.
Prohibition of Riba
Riba is usury or interest in English. Riba is an arrangement that exploits the poor by trapping them in continuously growing debt. This is while the rich increase their wealth without creating any value. When a loan is issued, the risk is skewed on one side. The concept of interest and loans makes the rich richer and the poor poorer.
Prohibition of Gharar
Gharar means uncertainty, and it is related to situations involving risk, uncertainty, or doubt. The word comes from the Arabic word “gharra,” which means to deceive. Gharar is prohibited because its existence denies parties equal bargaining power. For example, you should never enter a contract without understanding every detail.
Prohibition of Maysir
Maysir is gambling. It is forbidden in Islam because the outcome is based completely randomly. “Investing” in financial products that are too risky, to a point where it is gambling is haram. Every investment should have a strong rationale behind it.
These are the three main ways Islamic finance protects consumers from losing everything they have.
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