Islamic law, or Sharia, provides a comprehensive framework for financial transactions and business ethics, rooted in principles derived from the Quran and Hadith (the sayings and actions of the Prophet Muhammad). The key principles governing Islamic finance and business ethics are as follows:
1. Prohibition of Riba (Usury or Interest)

• Riba is the practice of charging interest on loans or any guaranteed return on investment that is considered exploitative or unfair. It is strictly prohibited in Islam, as it is seen as unjust enrichment without any productive activity or risk-sharing. Financial transactions must be free of interest, and profit should come from legitimate business activities.

2. Prohibition of Gharar (Excessive Uncertainty)

• Gharar refers to excessive uncertainty or ambiguity in contracts and transactions. Islamic law requires that all terms and conditions in a contract be clear and transparent to all parties involved. Contracts that involve significant uncertainty or speculation are considered invalid.

3. Prohibition of Haram (Unlawful) Activities

• Islamic finance and business must avoid activities that are deemed haram, or forbidden. This includes businesses involving alcohol, gambling, pork, and other activities prohibited in Islam. Investments and profits must be derived from lawful (halal) sources.

4. Risk-Sharing

• A fundamental principle in Islamic finance is the concept of risk-sharing. Instead of interest-based loans, Islamic finance encourages profit-sharing and joint ventures (Mudarabah and Musharakah). In these models, both parties share the risks and rewards of the business, which promotes fairness and mutual benefit.

5. Fairness and Justice

• Islamic law emphasizes justice, fairness, and transparency in all business dealings. Parties are expected to engage in transactions that are equitable and do not exploit others. This includes fair pricing, honesty in trade, and fulfilling contractual obligations.

6. Zakat (Almsgiving)

• While not directly a business principle, Zakat plays a crucial role in Islamic economics. It is a form of mandatory charity, calculated as a percentage of one’s wealth, and is used to support the less fortunate. Business practices should ensure that wealth is not hoarded and is circulated in the economy, benefiting society as a whole.

7. Ethical Investments

• Islamic law encourages investments that contribute positively to society and the environment. Investments in industries that harm people or the planet are discouraged. The focus is on social responsibility and ethical practices in business.

8. Contractual Integrity

• Contracts in Islamic law must be upheld with integrity. Deception, fraud, and breach of contract are serious offenses. All parties are expected to adhere to the agreed-upon terms, and disputes are to be resolved justly, often through arbitration.

9. Avoidance of Exploitation

• Islamic law prohibits exploitative practices, such as monopolies or price-fixing, which can harm consumers or the market. It encourages competition and prohibits unjust enrichment at the expense of others.

Applications in Modern Islamic Finance
These principles are implemented in modern Islamic finance through various financial products and institutions, such as Islamic banks, Takaful (Islamic insurance), and Sukuk (Islamic bonds). These institutions structure their products in a way that adheres to Sharia principles, offering alternatives to conventional banking and finance that are aligned with Islamic ethics.

In summary, Islamic law promotes an ethical, transparent, and socially responsible approach to financial transactions and business activities, emphasizing fairness, risk-sharing, and the prohibition of exploitative practices.