Moral principles (ethics) are more important in Islamic finance than efficiency, while in conventional finance efficiency is more important.  This is largely based on the 10 core principles of Islamic economic system – property rights, property obligations, contracts, trust, individualized rights and obligations, work, wealth, barakah, risk-sharing, and competition, and cooperation.

Those who have greater physical and mental capacities have greater responsibilities and obligations. However, the absence of physical and mental capacities do not negate right and access to properties and natural resources. Everyone should participate responsibly for the good of society.

The characteristics of an efficient financial system are measured by how well savings from savings surplus units (SSUs) are allocated to savings deficit units (SDUs). This could be achieved through allocation,  pricing, information, and transactional efficiencies.

The basic principles or norms of Islamic finance are freedom to contract; freedom from Al-Riba, Al-Gharar, Al-Qimar, Al-Maisir, price manipulation, darar; right to transact at a fair price; equal, adequate, and accurate information; and mutual cooperation and solidarity.

It is important to emphasize that excess or interest is prohibited and that there is no reward for time alone. Excessive uncertainty, speculation, and gambling are not acceptable as a means to earn income. Artificial supply and demand to manipulate the price to maximize profit are prohibited. Parties should be free from harm when entering contracts and avoid darar. Hiding vital information and misrepresentation in transactions is unacceptable.

Contracts are the basis for economic relationships and there are four categories – transactional, financing, intermediation and social welfare. 

Transactional contracts should involve real economic transactions. Transactional contracts could involve sale of asset where ownership is transferred; and sale of rights to use assets where only rights, not ownership, are transferred. Islamic finance emphasizes trade of physical assets and the right to use assets.

Manner of sale could be broadly categorized by the subject of a sale or what is sold; and sale by mode of payment. Sale by subject is bai, sarf, barter, Bai al-Dayn, Bai al-Salam and Bai al-Istisnah. Sale by mode of payment is spot cash sale, installment, lump sum payable in the future, Bai al-Arabun and Bai al-Mu’ajjil.

Financing contracts create and extend credit to fund transactional contracts. These offer low-risk asset-backed securities and promote risky equity financing. The four financing contracts are Murabahah, Bai Bithaman Ajil (BBA), Tawarruq, and Musharakah.

Intermediation contracts are executed to ensure efficient and transparent execution of transactional and financial contracts. Social welfare contracts are considered commercial contracts that promote the welfare of marginalized sectors of society.