Islamic Banking and Finance Definition History and Example

up:: Content
author:: Evan Tarver
full title:: Islamic Banking and Finance Definition: History and Example
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Highlights §

• Two fundamental principles of Islamic banking are the sharing of profit and loss and the prohibition of the collection and payment of interest by lenders and investors. (View Highlight)
• Islamic banks make a profit through equity participation, which requires a borrower to give the bank a share in their profits rather than paying interest (View Highlight)
• The principles of Islamic banking are derived from the Quran–the central religious text of Islam (View Highlight)
• When more information or guidance is necessary, Islamic bankers turn to learned scholars or use independent reasoning based on scholarship and customary practices. (View Highlight)
• Shariah strictly prohibits any form of speculation or gambling, which is referred to as maisir. Shariah also prohibits taking interest on loans. In addition, any investments involving items or substances that are prohibited in the Quran—including alcohol, gambling, and pork—are also prohibited. In this way, Islamic banking can be considered a culturally distinct form of ethical investing. (View Highlight)
• Equity participation means if a bank loans money to a business, the business will pay back the loan without interest and instead give the bank a share in its profits. (View Highlight)
• general, Islamic banking institutions tend to be more risk-averse in their investment practices. (View Highlight)