According to Islamic finance principles, what must financial transactions be backed by?

In Islamic finance, financial transactions must be backed by tangible assets or services to comply with Sharia principles. This requirement stems from the prohibition of Riba (usury or interest) and Gharar (excessive uncertainty or ambiguity) in transactions. When financial transactions are backed by tangible assets or services, it ensures that the investments have real economic value, promoting ethical and responsible financial practices.

This principle encourages investments in productive activities and avoids speculative behaviors, maintaining fairness and justice in financial dealings. Thus, backing transactions with tangible assets aligns with the core values of Islamic finance, fostering a more stable and accountable financial system.