Islamic Banking – How does it work?

Islamic banking is the fastest growing sector in the banking industry. Islamic banks operate in accordance with the Shar’iah (Islamic law) which provides Muslims guidance on different aspects of life including banking, business and economics. One of the major rulings of the Shar’iah law is the prohibition of interest. A key principle of Islamic finance is that of profit and loss sharing – this is when all parties in a financial transaction would enter into a partnership arrangement agreeing to share profits of the business venture along with any losses too according to the capital invested.

Islamic banks aim to promote socio-economic justice in society and lies in between capitalism and communism in allowing individuals to make money but not at the expense of others. Financial transactions must not contain any elements of uncertainty in the contracts as all parties must fully understand all aspects of the contract. Investments must be ethical and cannot be linked to prohibited industries such as alcoholic drinks. This talk will provide an introduction to Islamic banking and finance.