Answer to Question #122010 in Economics for Mohsin Ali

Question

Suppose a friend of yours asks you about Islamic banking and he does not believe in Islamic banking because Islamic banks use KIBOR in taking profit which is the benchmark of conventional banks and moreover Islamic Banks also receive extra money from thier customer in case of delay of his payment. So how do you satisfy your friend by answering these questions?

Answer 1

Islamic banking, also known as non-interest banking, is a banking system that is based on the principles of Islamic or Sharia law and guided by Islamic economics. 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. Islamic law prohibits collecting interest or "riba."

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.