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- The Islamic banking and finance movement that developed in the late 20th century as part of the revival of Islamic identity sought to create an alternative to conventional banking that complied with sharia (Islamic) law. Following sharia it banned from its practices riba (usury) – which it defined as any interest paid on all loans of money – and involvement in haram (forbidden) goods or services such as pork or alcohol. It also forbids gambling (maisir) and excessive risk (bayu al-gharar). This meant that not only were interest-bearing loans, accounts, and bonds not allowed, but many financial instruments and activities common in conventional financial markets have been forbidden by most Muslim scholars because of their connection with maisir or gharar (and also sometimes because they involve payment of interest). These include margin trading, day trading, short selling, and financial derivatives such as forwards, futures, options, and swaps. This, however has not stopped the Islamic finance industry from using some of these instruments and activities, and their permissibility is a subject of "heated debate". While they often involve more risk than other investments and are used by speculators, they are defended as having useful economic functions. They are used in a large number of financial procedures, help manage risk and volatility (among other things), and provide incentives for employee productivity and innovation. (en)
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