In the Islamic financial world, money is not a tradeable commodity, and it has no time value. It is merely a medium of exchange. As time goes by, all that changes is the level of risk: The longer an investor has to wait to be repaid, the greater the chance of an adverse event. Goods that do not exist at the time of the sale cannot be sold. These principles discourage speculation and the creation of derivatives without a deliverable underlying asset. Money is always tied to the real economy. If that relationship were always observed, energy prices, for one, might be much less volatile.
An Islamic mortgage bond, for example, would consist of Sharia-compliant mortgages, in which the borrower makes a large down payment and pays rent to the lender, who owns the property until the term runs out. Subprime mortgage bonds, along with the related derivatives that did so much damage during the 2008 financial crisis, would not be possible.
(Bloomberg / 30 Oct 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com