As recorded by Professor S.D Goiten, the basis of commerce and industry in the twelfth and thirteenth centuries in the Mediterranean region was formed through partnership and profit-sharing rather than interest-based borrowing and lending.

From a very early stage in Islamic history, Muslims were able to gather resources to finance productive activities without interests. However, western financial institutions including banks dominated in following centuries making the Islamic tradition dormant.

In the 1970s, the commercial practice of Islamic finance was launched in the Gulf countries. A number of Islamic banks were established not only in the Gulf but also in Arab countries with the Dubai Islamic Bank being the first in the world.

In modern times, some countries in Europe, Africa and South America are practicing Islamic finance. Ghana is set to be next.

The Concept of Islamic Finance

Islamic Finance is a system of financing where all financing and economic activities comply with the sharia (Islamic law). Under Islamic finance, businesses and individuals raise capital in accordance with the Islamic law.

Islamic finance prohibits payment and receipt of riba (interest), gharar (unequally shared risk), maysir (gambling) and does not permit investments in selling, buying, and distributing of goods such as pork, pornography, deadly weapons, alcohol  and services that are unlawful according to the sharia.

Islamic finance is widely known for serving communities and making ethical investments. Sharia (Islamic law) in the context of Islamic finance emphasizes justice, partnership, social responsibility and equality.

Its main principles are;

  1. Wealth must be generated through genuine trading and asset-based investments.
  2. Risk should be shared
  3. Investments should socially and ethically benefit the society beyond pure profit.
  4. Avoid all harmful (haram) activities.

Some Islamic- financial instruments which provide sharia- compliant finance are: Murabaha (Cost plus sales), Musharakah (Venture Partnership), Ijara (Lease Contract), Mudarabah (Partnership) and Sukuk (Bond).

  • Murabaha: This instrument, Murabaha, does not lend money to the customer. Instead, the bank buys a product and sells to the customer at a profit. The money is paid in instalments. For example, a bank buys a car at GHS30,000 and sells to its customer for GHS35, 000 to be paid in instalments for twelve months.
  • Musharakah: This is a joint venture partnership. Two or three parties contribute capital and actively participate in the management of the business or project. Profits and losses are shared according to agreed ratios.

This mode of Islamic finance can be used in the establishment and management of schools, where both parties have skills in managing the school and have both contributed capital towards running it.

  • Ijara: This is a usufructuary lease (the right to use an object) for a particular period. A bank can use this instrument in buying a house and leasing to a customer at an amount per month or year. The ownership of the house still remains to the bank after period for the Ijara is elapsed.
  • Mudarabah: This is an agreement between an economic agent with capital and an entrepreneur with the management expertise to develop a partnership and share its profits and losses.

In a situation where a client has skills to operate an eatery, a bank or an investor can contribute capital whiles the client brings his or her expertise on board for the partnership. Profits and losses are shared according to agreed ratios.

  • Sukuk: This was developed as an alternative to the conventional sovereign bonds (which, due to the interest component and their non-Shariah compliance nature like investing in gambling, pork, alcohol and other prohibited activities which were not permissible under Islamic law). Sukuk are structured to comply with the sharia and pay profits instead of interests.

What religious texts say about Islamic Finance

The Bible and Quran are two of the most revered holy books in this world. These books are respected and held in high esteem by the followers of the three Abrahamic faiths (Judaism, Christianity and Islam) as these books teach and guide them in their ways of life.

To every devout Muslim or Christian, all text found in these are undoubtedly true and a definite source of guidance. Hence, it becomes very important for every Muslim or Christian to balance religious considerations with the demands of a modern economy in their financial transactions.

In Islamic finance, economic agents are not only guided by legal rules but also by the rules prescribed in the Holy Scripture, Quran.


Gharar (uncertainty), Maysir (gambling) and charging and receiving of fixed interests (riba) on loans and investments are highly prohibited in Islam. These components in financial transactions lead to excessive debt creation, negative growth, speculation and large disparity between the wealthy and the poor.

Islamic finance, through the prohibition of riba, gharar and maysir, protects the society from impact of instability, inflation, unemployment and promotes social justice and economic efficiency.

The charge and receipt of riba is seen to be exploitive as Islamic finance promotes mutually beneficial oriented behavior among different stakeholders and cooperation with the assurance of a welfare oriented society.

Islam encourages businessmen and women to generate their wealth through legitimate trade and discourages them from capital extension through lending and borrowing.

Allah said in His first revelation on the prohibition of riba in Surah Al-Rum, Verse 39:

“That which you give as interest to increase the peoples’ wealth increases not with Allah; but that which you give in charity, seeking the goodwill of Allah, multiplies manifold.” (Quran 30:39)

In Surah Al-Nisa’, verse 161, He mentioned,

“…And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples’ property. We have prepared for those among them who reject faith a grievous punishment.” (Quran 4:161)

Allah again said in Surah Al-Imran, Verses130-132:

“O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith and obey Allah and the Prophet so that you may receive mercy.” (Quran 2:130-132)

Surah al-Baqarah, Verses 275-281 reveals the punishment written by Allah SWA for believers who engage in interest based transactions and other unlawful ways of trading.

He said,

“Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the devil; this is because they say: “Trade is like interest” while Allah has permitted trade and forbidden interest. Hence those who have received the admonition from the case being entrusted to Allah; but those who revert shall be the inhabitants of the fire and abide there in forever.” (Verse 275)

“Allah deprives interest of all blessing but blesses charity; He loves not the ungrateful sinner.” (Verse 276)

“Those who believe, perform good deeds, establish prayer and pay the zakat, their reward is with their Lord; neither should they have any fear, nor shall they grieve.” (Verse 277)

“O, believers, fear Allah, and give up what is still due to you from the interest (usury), if you are true believers.” (Verse 278)

“If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it.” (Verse 279)

“If the debtor is in difficulty, let him have respite until it is easier, but if you forego out of charity, it is better for you if you realize.” (Verse 280)

“And fear the Day when you shall be returned to the Lord and every soul shall be paid in full what it has earned and no one shall be wronged.“ (Verse 281)

The prohibition of riba (interest) in the Quran establishes a financial system based on value of justice, social responsibility, equality, stability and growth.

The prohibition of gharar and maysir allows risks and returns to be shared between the investor and entrepreneur in an equitable manner based on capital proportions and services offered.

In as much as Islamic finance rests on the application of Islamic law whose primary sources are the Quran and the teachings of the Prophet Mohammed, the Bible equally has various verses and scripture advocating for Islamic Finance.



Ezekiel 18:8 says; He does not lend to them at interest or take a profit from them. He withholds his hand from doing wrong and judges fairly between two parties”.

God repeats again in Ezekiel 18:13 and said: “He lends at interest and takes a profit. Will such a man live? He will not! Because he has done all these detestable things, he is to be put to death; his blood will be on his own head.”

God in Exodus 22:25 warns His people that, “If you loan money to my people, to the poor among you, don’t be like a creditor to them and don’t impose interest on them.”

Deuteronomy 23:19 reads: “Do not charge a fellow Israelite interest, whether on money or food or anything else that may earn interest. You may charge a foreigner interest, but not a fellow Israelite, so that the LORD your God may bless you in everything you put your hand to in the land you are entering to possess.

Also in Leviticus 25:36, God cautioned Christians to fear Him and desist from taking and charging interests. He said: “Do not take interest or any profit from them, but fear your God, so that they may continue to live among you.”

Leviticus 25:37 says: “Remember, do not charge interest on money you lend him or make a profit on food you sell him.”

Psalm 15:5 reveals the position of Christians who do not charge and take interest in the world and hereafter. It reads: “Those who lend money without charging interest, and who cannot be bribed to lie about the innocent. Such people will stand firm forever.”

Proverbs 22:7 says: “The wealthy rule over the poor, and anyone who borrows is a slave to the lender.”

God says again in Proverbs 28:8: “He that by usury and unjust gain increaseth his substance, he shall gather it for him that will pity the poor.”

In Romans 12:2 God said: “Do not be conformed to this world, but be transformed by the renewal of your mind, that by testing you may discern what is the will of God, what is good and acceptable and perfect.”

The verses and sayings in the Bible on Islamic finance provide concrete evidence that Islamic Finance is not meant only for Muslims but for everyone, Christians included.

Apart from the religious face of Islamic finance, it plays an important role in economies by creating jobs for individuals and generating income, promoting economic growth and social stability.

And to cap it, we have the following to say:

“African governments have increased their presence in Islamic capital markets in recent years with numerous debut issuances. Average annual sukuk issuance for Africa was negligible until 2012 but during 2013-19 has averaged $433 million per year.

“Expanding into Islamic Finance would diversify funding sources for African economies and reduce funding shortfalls, currently exacerbated by the coronavirus pandemic”,

From Moody’s rating agency in its latest report on Islamic finance in Africa.


Written by: Ms. Rabiatu Yakubu

Deputy Communications Director (IFRIG)



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