Islamic Banking
Islamic banking is a financial system that operates in accordance with Sharia law, prohibiting interest (riba) and promoting ethical investments through profit-sharing and risk-sharing mechanisms.
The types of Islamic banking include:
- Murabaha: Cost-plus financing where the bank purchases goods and sells them to the client at a profit margin.
- Mudarabah: A profit-sharing arrangement where one party provides capital and the other provides expertise.
- Musharakah: An equity participation contract where all partners contribute capital and share profits and losses.
- Sukuk: Islamic financial certificates similar to bonds, representing ownership in a tangible asset.
- Ijara Financing: Ijara financing is similar to leasing, where the bank purchases an asset and leases it to the customer for a specified period. At the end of the lease term, the customer may have the option to purchase the asset
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What is Islamic Banking?
Islamic banking, also known as Non-interest Banking or Islamic Finance, refers to a system in which financial intermediaries operate strictly within the framework of Shariah, ensuring every transaction aligns with Islamic teachings. Unlike conventional banking, which relies heavily on interest-based transactions, Islamic banking relies on asset-backed, equity-sharing, and risk-sharing models.