February 13, 2018
Islamic banking which is also known as “Sharia compliant finance”, meaning banking activity that is consistent with the principles of Sharia- the moral code and religious law of Islam.
Islamic banking has the same purpose as conventional banking- making money by lending out capital, while following the rules of Shariah. In order to be Islamic, the banking system has to avoid interest and its operations cannot involve elements which are not approved by the religious laws of Islam.
The basic principle of Islamic banking is based on risk-sharing. This is viewed as a component of trade as opposed to a risk-transfer which is how conventional banking is regarded. Sharia forbids the fixed or floating payment or acceptance of specific interest rates or fees known as Riba.
Simply put, payment of charges for the renting of money is prohibited under Sharia. Further, there should be an avoidance of;
We shall now define a few of the Islamic banking terms that people- associated with it and not-will hopefully now be able to grasp a greater understanding of the topic and type of banking.
We hope that this basic guide to Islamic banking will shed some light on this topic. You can read more in-depth articles and guides on Comparehero’s blog!
See also: Your Guide To Islamic Credit Cards