What is Islamic banking and how does it work?

 What is Islamic banking?

 Islamic banking or finance is a financing activity that must comply with Shariah (Islamic law). Therefore, the term may also refer to investments permitted under Shariah.

How is Islamic finance different from other types of finance?

Islamic finance is based on the belief that money should have no intrinsic value. Instead, it's just a way of exchanging valuable products and services.

Related to this way of thinking about money is the idea that money should not be turned into money. This means that whenever possible, you should avoid participating in interest by paying or receiving interest.

Another critical idea underpinning Islamic finance is that it should not harm. For this reason, Islamic banking services should not invest in alcohol, tobacco, gambling, etc. Islamic finance also encourages partnerships. This means that both benefits and risks should be shared wherever possible. This can be between two people, an individual and a company, or a company and a company.

How Does Islamic Finance Work?

Shariah-compliant checking accounts do not pay interest. Instead, bank deposits are used as interest-free loans for quick access to money. This loan is called a "card."

When you open a savings account, the bank invests your deposited money. But they don't invest in what Sharia says is harmful.

The bank pays you a portion of its profits. Depending on what you invest in and how you calculate your earnings, this could be a 'wakalah' (where the bank acts as your agent) or a 'Murabaha' (where the bank buys and trades commodities to make a profit). Place to raise).

When buying a home, there are several alternatives to traditional mortgages.

A type of contract allows the bank to purchase the desired property directly. They then sell it to you at a profit and let you pay in installments. This is also known as a "Murabaha" contract (to buy a property and sell it at a profit). Alternatively, a property can be purchased with a bank in a so-called musharaka (partnership) arrangement. Then gradually pay the bank a share of the property over time.

In either case, the bank will charge an additional fee to cover the costs and reflect that you live on a property that the bank partially owns.Islamic banking services

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