4 Misconceptions about Islamic Finance

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The world is starting to take notice of the Islamic finance sector and the benefits to everyone it can bring. The growth story is one of an industry worth only $200 billion in 2003 to one expected to hit $4 trillion by 2030. Despite the growth however there is still a considerable amount of misconceptions surrounding this industry. In this article we attempt to tackle some of the main misunderstandings we regularly hear in the hope more people will be encouraged to consider these ethical and transparent products and appreciate Islamic finance for what it is.

Misconception #1

Exclusively for Muslims

The Islamic finance industry is absolutely inclusive and open to everyone. In fact a growing number of non-Muslim consumers and institutions are investing in the sector due to its structured ethical design. The architects of Islamic financial products, COCOA being an example, believe the ethical values that underpin Islamic finance should be promoted so more people can benefit from these transparent products.

Misconception #2

Islamic and conventional finance are the same

On the surface it could appear that there is little difference between Islamic and conventional finance. Both share the same objectives and product types, and both are priced reasonably the same. However, when you look into how Islamic financial products achieve their objectives the difference becomes much clearer.  One of the biggest differences is that Islamic finance does not use interest-bearing agreements at all. Instead a range of contracts are utilised to bring partners together that provide a clear definition of roles where the focus in on an appropriate risk-sharing partnership agreement.

Ethical framework is another area that is a strong difference to conventional finance that underpins the entire decision-making process for the Islamic financial industry. For example there are strict rules on sectors that can and cannot be included for investment. Industries considered unethical and strictly off limits include, but not limited to, weaponry, adult entertainment and tobacco. Conventional finance has no such ethical restrictions.

Misconception #3

Islamic finance is more complicated than traditional finance

Islamic financial products in general can seem more complicated to the average consumer, and even to some industry professionals, due to the new approach to achieving objectives, concepts, terms and practices. However as with all forms of investing, consumers should seek the services of an expert that provide support and guidance throughout the process. COCOA is one such example, as experts in investing and managing portfolios of ethical Islamic financial products we can make sure we put our investors first and keep them on the right track.

Misconception #4

Islamic finance is more expensive than conventional finance

When the industry was just evolving and operating in a very niche market it was difficult to price products competitively against more traditional alternatives. However, as more people are buying Islamic financial products and services, the industry has become more mainstream. Consequently prices have fallen in line with more traditional financial products.

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