Sharia literally translates to вЂthe way to the source of lifeвЂ™- it encompasses all the laws governing Muslims in all aspects of life.ДЄnother distinction is that Islamic banks operate on the basis of profit and loss sharing. The primary difference between these two banking methods is that the Islamic banking system is based on the Islamic Sharia law while the orthodox banking system is based on man-made ideology and principles. There are countless misconceptions, misinformation and fallacies about the dissimilarities of these two banking systems. This is a major reason why Islamic finance now has a serious, stable and trustworthy image around the world.A lot of people still lack knowledge of what Islamic banking is really all about and how it differs from the standard banking systems most economies are using right now.

вЂњAdherence to Shariah principles-which precluded Islamic banks from financing or investing in the kind of instruments that have adversely affected their conventional competitors-helped contain the impact of the crisis on Islamic banksвЂќВ concluded a 2010 IMF report. Unlike their conventional counterparts, sharia-compliant banks were not involved with toxic assets and resisted the shock better. This substantially protected Islamic banks from the 2008 financial crisis. They traditionally avoid derivative instruments such as futures or options and prefer to have assets grounded in the real economy. Moreover, sharia-compliant entities have proven themselves in times of crisis.Д«ecause Islamic law holds that making money from money is wrong, sharia-compliant institutions tend to refrain from engaging in speculation. This ethically-driven approach to business partly explains the success of Islamic banks at a time when many customers lack trust in the financial system. It is interesting to note that similar initiatives exist in other faiths-the STOXX Index for example only selects companies that respect Christian values. Dealing with anything illicit (haram) like alcohol production, pork breeding, arms manufacturing, or gambling is strictly forbidden. Instead of thriving off of interest rates, Islamic banks use their customersвЂ™ money to acquire assets such as property or businesses and profit when the loan is successfully repaid.ДЄll Islamic finance investments, acquisitions, and transactions must reflect Islamic values. The key notion here is risk sharing-the banks make a profit on the transaction as a reward for the risk they took with the customer. The obvious question then becomes: how do Islamic banks make money? Instead of lending money to their clients at a profit, they buy the underlying product-the house, the car, the refrigerator-and then lease it or re-sell it on installment to the client for a fixed price typically higher than the initial market value. Sharia-compliant banks donвЂ™t issue interest-based loans. In economic terms, this means lender and borrowers are forbidden from charging or paying interest or riba. The most famous rule in Islamic finance is the ban on usury. So what is behind the success of Islamic finance? What makes Islamic finance special? Why is it growing rapidly?

Is Islamic Finance Only For Muslim-Majority Nations?.

How Does Islamic FinanceВ Make Money Without Interest?.

What Is Islamic Finance And How Does It Work?.

In some geographies like the Gulf Cooperation Council (GCC) or Sub-Saharan Africa, Islamic banks now compete directly with Western banks to attract Muslim clients. With COVID 19 that growth is expected to slow down but remain positive. Islamic finance only represents about 1% of global financial assets but with a 11,4 % growth in 2019, it was expanding quicker than conventional finance. According to a 2019 State of Global Islamic Economy report, total sharia-compliant assets are expected to grow to $3.5 trillion by 2024. Islamic banks are by far the biggest players in the Islamic finance industry and account for $1.75 trillion or 70% of total assets. Islamic finance hardly existed 30 years ago yet today is a $2.5 trillion industry with hundreds of specialised institutions located in more than 80 countries. вЂ‹ Islamic finance is a way of doing financial transactions and banking while respecting Islamic law orВ sharia.

What is islamic banking