What is Islamic Banking?
Islamic banking covers financing or banking activities that strictly adhere to Sharia (Islamic law). Broadly speaking, there are two fundamental tenets of Islamic banking—strict prohibition on the payment and collection of interest and prohibition on investments in activities or substances forbidden by Sharia, such as alcohol, pork, and gambling.
Instead of charging an interest rate, Islamic banks enter an equity participation agreement with a borrower. The borrower shares their profit with the bank until the debt is paid in full.
Islamic banking is steeped in tradition; it adheres to the tenets of Islam so that banking activities become a way of accessing financial products and a component of worship. Access to financial services in Islamic countries is increasing. As a result, Islamic b …