Islamic Financial Engineering and its Role in the Development of Islamic Financial Products

Abstract

The Islamic financial industry faces a multitude of challenges, primary among which is the innovation and development of Sharia-compliant financial products capable of competing with conventional offerings. Such innovation is essential for enabling Islamic financial institutions “IFIs “to provide a diverse suite of financing instruments that meet the evolving needs of their clientele. Consequently, the industry must prioritize the creation of financial products and tools that reflect the unique characteristics of the Islamic economy. This is achieved through the framework of "Islamic Financial Engineering," which has produced specialized investment instruments and structures governed by Islamic economic principles. These tools deliberately avoid interest-based (Riba) transactions and excessive risks that border on gambling rather than legitimate investment.