Is There That Much Of A Difference: A Comparison Between Conventional And Islamic Investment Vehicles

The field of Islamic finance has largely focused on providing loans that are compliant with principles of the Islamic faith. A new market for sukuk bonds has been established to address the concerns that many Muslims have when it comes to the preservation of capital. Sukuk bonds while similar to conventional bonds are typically backed by a particular asset and investors receive derived profits instead of interest. While some have applauded such an achievement, others have stated that these bonds, while asset-backed, are indirectly based on risk-free interest rates and therefore should be prohibited. In the West, there are those who are even more concerned that these shariah-compliant investment vehicles may usurp conventional bonds. To quell in part this potential crisis, this paper explains benevolent principles of Islamic finance and offers similarities with conventional finance. Thus, the purpose of this paper is to help foster a dialogue that might bring both sides of this debate closer to realizing the similarities in investment vehicles so that bridges of understanding may be built and used.