s different from the typical loan types of commercial banks which impose interest on loans in some form or the other.2. The lender must share in the profits or losses arising out of the enterprise for which the money was lent:One of the basic concepts of Islamic banking is to share profits as well as losses. In this way, the lender and borrower become partners rather than creditor and debtor. The incentive behind this is to make both parties involved to equally share risk of the outcome, regardless of the transaction at hand. In modern days, since an Islamic institution is the intermediary, it shares the risks as well as profits with the borrowers and lenders. This differs obviously from the traditional banking system which imposes and collects an interest rate on the loan regardless of the success or failure of the borrowers’ businesses. This system puts all the risk on the borrower which at many times can be hectic and merciless. 3. Making money from money in Islam is not acceptable: Money can only be used as a medium of exchange, i.e. to determine the value of an item. It in itself does not have value and therefore should not be used to generate more money, via fixed interest payments, simply by being put in a bank or lent to someone else. Only human effort and taking risk in starting and managing a venture are the means of generating money. In other words, money should be used as a form of debt rather than being capital, and this debt should not be allowed to generate interest. For this reason, Muslims are encouraged to purchase goods and services rather than accumulating it and/or earning interest on it, whether by depositing it in interest-based banks or lending it to people for benefits in return. 4. Uncertainty, risk or speculation (gharar) is also prohibited:The Islamic banking system allows only transactions in which the results are known and determinable. The parties involved in the transaction have perfect knowledge of...
