Riba: Usury or Interest

This “A Mini Guide to Accounting for Islamic Financial Products” starts with the development of Islamic finance as well as accounting standards and development of AAOIFI which aims to develop standards on accounting, auditing, ethics and governance and disseminate them on the target market.

The guide also highlights selected accounting issues addressed by AAOIFI : substance over form, prudence, mudarabah investment accounts and asset valuation. This is followed by how information of financial statement of an Islamic bank helps its major users, like equity holders, holders of investment accounts, regulatory agencies and others.

The guide also points out the main differences in the presentation of financial statements of Islamic Financial Institutions. Among them are: how assets are defined and inclusion of equity of unrestricted investment account holders. The differences arise as a result of utilizing a Shari’ah compliant contract to bring into effect a particular product.

The last section discusses some of the more popular contracts such as murabahah, istisna’, ijarah, mudarabah and musharakah. A few case studies are also incorporated for different contracts to give more understanding on the topic to the readers.

What is the book all about? It seeks to strike a balance between objectives and expectations. While expectations are easy, meeting objectives is hard.

The book also aims at unlocking the real face of Islamic finance without any make-up or cosmetic touch-up. The moment it is linked to something external and artificial, it becomes cluttered.

For all intents and purposes, every discipline has its core torso and fabric. Islamic finance should have its own ‘DNA’ and identity. The book is simply about bringing Islamic finance back to its basics. You may add on additional verticals and layers but it cant be on the expense of its core foundation.