Islamic finance is a Sharia-compliant financial system rooted in principles developed over 1,400 years ago from the Quran and Sunnah. It emphasizes ethical, interest-free, and socially responsible finance. Core principles include the prohibition of interest (riba), avoidance of excessive uncertainty (gharar) and gambling (maysir), risk sharing, asset-backed transactions, transparency, and investment only in permissible (halal) activities. Returns must be linked to real economic activity, and profit is allowed only when risk is shared.

Islamic banking replaces loan-based models with trade- and investment-based structures. Sale-based contracts include Murabaha (cost-plus sale), Salam (forward purchase), Ijara (leasing), and Istisna (manufacturing or construction finance). Investment-based contracts include Mudaraba (profit-sharing between capital provider and manager), Musharaka (equity partnership), and Wakala (agency-based investment).

Strong Sharia governance underpins the system, involving Sharia boards, auditors, and standard-setting bodies such as AAOIFI and IFSB. Together, these structures enable Islamic finance to align financial activity with ethical conduct, fairness, and real asset creation.