The system is based on Shariah principles, where usury is prohibited, as well as investing in certain sectors
In the Islamic financial system, money must be linked to real goods or services to avoid any speculation and injustice, including the mandatory condition of profit and risk sharing among all participants. All banking operations must comply with the standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
Usury, or riba, is strictly prohibited in any form, whether it involves lending money at interest or providing funds for investment purposes. This prohibition is clearly established in the texts of the Quran, Sunnah, and the unanimous consensus of scholars – ijma’
permissible investments
Unlike conventional financial institutions, the Islamic economic system defines prohibited activities, which include industries deemed unlawful under Shariah. When selecting investment projects, all industries related to usury, alcohol, gambling, and similar activities are excluded
sharing
To ensure the fairest and most transparent conditions, Islamic finance requires that participants in transactions and operations – banks, investors, clients – share both risk and profit. This is implemented through concepts such as Musharaka – partnership and Mudaraba – trust financing. In conventional finance, risks are often borne by only one party
In Islamic finance, financial transactions must be linked to real goods or services, which eliminates speculation and the use of high-risk financial instruments. In conventional finance, speculation and the trading of derivatives are allowed
In a conventional bank, decisions are made by the Management or Board of Directors, depending on the bank's internal structure
In Islamic banking, there is a Shariah Board that ensures all products and services comply with Islamic laws and principles. This Board may make adjustments to financial products to ensure they align with Shariah
In conventional banking, social responsibility is not always a priority, as the main goal is profit maximization
In Islamic banking, social responsibility and community welfare are key considerations. Islamic banks often invest in projects that benefit society and align with the ethical principles of Islam
Conventional banks offer products with fixed interest rates, such as loans, deposits, and bonds
Islamic banks provide products like Murabaha – cost-plus financing, Ijara – leasing, and Wakala – agency agreement
Conventional banks make money by paying and charging interest
In Islamic banking, charging or paying interest is prohibited. Instead, banks utilize models based on principles of partnership, trade, leasing