INVESTMENT FUNDS AS A POSSIBILITY FOR USING ISLAMIC FINANCIAL CONTRACTS IN SERBIA

The Islamic financial system represents a concept of finance that operates without interest, based on the principles of profit-and-loss sharing and fairness. With global assets exceeding one trillion US dollars, the Islamic financial system is gradually gaining popularity globally, including the Balkans. Currently, the only Islamic bank in the region is Bosnia Bank International. In this paper, we analyze the possibility of applying Islamic financial contracts through investment funds within the existing legal framework in Serbia. Given that the Islamic financial system prohibits interest, investment funds, which rely on profit-and-loss sharing, present a suitable instrument for attracting investors who adhere to Islamic finance principles. The analysis shows that while UCITS funds, which primarily invest in interest-bearing instruments, are not aligned with Islamic principles, Alternative Investment Funds (AIFs) offer greater flexibility. AIFs can invest in real estate, commodities, and shares in business entities, making them suitable for Islamic financial instruments such as musharaka, mudaraba, ijara etc. We conclude that AIFs present a promising opportunity for integrating Islamic finance into Serbia's financial system, attracting ethical investments, and fostering economic growth. Future research should focus on overcoming existing limitations and improving the regulatory environment to enable further development of Islamic finance in Serbia and the Balkans.