Published at:Islamic Research & Traning (Islamic development bank)
A key tenet of the Islamic value system is the value of fairness, which by all means is the basic foundation of Islamic finance. The principle of fairness aims at balancing the extent of risk ingrained within every business undertaking and the expected returns to be generated from such activities. A remarkable feature embedded in Islamic financing is the principle of Profit-and-Loss Sharing (PLS) where investors share the risk, as well as the rewards, associated with their investment activities. On the other hand, Islam deems some (business) activities as being unlawful on the ground that they are too risky and speculative, thus are strictly prohibited.
Building on these canons of business principles, this paper aims to provide a framework for the concept of “just risks and fair returns” within the context of Islamic financing, and to draw the line between excessive risk taking and rational risk sharing in accordance with the readings of the Islamic business code of conduct. The main object