Islamic financial models are unique in that ethics are intertwined with their operations. Islamic governance takes into account the social implications of a business transaction and thereby serves the greater community interests. One of the main tenets upon which Islamic banking law rests is the prohibition on interest or “riba”. The concept is meant to outlaw all forms of wrongdoing and give the financier an interest in the venture. Not only does the doctrine of “riba” prevent the exploitation of someone in a weak bargaining position, but it also forbids “all forms of gain or profit which were unearned in the sense that they resulted from speculative or risky transactions and could not be precisely calculated in advance by the contracting parties.” The prohibition of interest is meant to design an economy and society based on risk-sharing, fair dealing, and equity.
In Islamic law, the justification that interest is the cost of using money or that a loan is an investment is rejected in favor of ethics. Islamic economic theory criticizes the conventional financial industry for speculation, consumerism, volatility, “unnecessary products,” large corporations, and usury. These traditional capitalistic means of profit-making are not compatible with Islamic values. Islamic law therefore creates a culture where people only spend what they have, a theory in direct opposition to consumer driven models. Investment regulations are implemented to avoid “sinful” activity. Currency hedging, futures contracts, day trading, and credit cards are all prohibited under Islamic law. In addition, companies with excessive debt, interest-bearing securities and accounts-receivables in their assets are screened out. Islamic law further prohibits support of industries such as alcohol, gambling, pork-related products, tobacco, weapons, conventional financial services and other “immoral”