DO THE TERMS ISLAMIC FINANCE AND ISLAMIC BANKING MEAN THE SAME THING?
It is common to see people using the term ISLAMIC FINANCE and ISLAMIC BANKING interchangeably.
The two terms do not however mean exactly the same, Islamic finance is a wider concept which comprise Islamic Banking, Islamic Insurance, Islamic Capital Market which and Non-bank Islamic Financial Institution.
Diagram: Components of Islamic Finance
Islamic Banking entails the Islamic banks, Islamic Microfinance Institutions and Islamic SACCOs.
Under Islamic Capital Market we have Debt Market, Equity Market, Derivatives and Foreign Exchange Markets. Under debt market we have Sukuk (Islamic Bonds) and under Equity market are stock market, mutual funds, Islamic REITs among others. Under Islamic Capital market is also the controversial Islamic Derivatives which entails forwards, swaps and futures.
Takaful is the terms commonly used to refer to Islamic Insurance while under Non-Bank Financial Institutions we have Waqf and zakat collection among others.
We will cover the four components of Islamic finance in our subsequent articles.
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