Sharia

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DEFINITION of 'Sharia'

Islamic religious law that governs not only religious rituals, but aspects of day-to-day life in Islam. Sharia, literally translated, means "the way."

There is extreme variation in how Sharia is interpreted and implemented among and within Muslim societies today. This is especially prevalent for its financial laws.

Also known as "Shariah" or "Shari'a"

BREAKING DOWN 'Sharia'

Sharia-compliant finance is an area of modern finance that is growing among many banks and investment houses. This is due in part to investors eager to work with the Middle East as oil prices continue to increase. Western financial services firms are beginning to offer Shariah-compliant investment vehicles that neither pay interest, nor benefit from gambling.

In late 2007, a Sharia index was launched on the Tokyo Stock Exchange. This index includes companies that comply with Sharia law. The companies included in this index are screened on a daily basis, and exclude non Sharia-compliant companies such as casinos, and alcohol and tobacco companies.

In the West, Sharia-compliant investments are similar to socially responsible investments.

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