What is the Islamic way of banking?

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba´ (interest). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is Ijara wa Iqtina, which is similar to real-estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka. Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy.

And finally, Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. Islamic banking is synonymous with full-reserve banking, with banks achieving a 100% reserve ratio.[2] However, in practice, this is not always the case.~!

http://en.wikipedia.org/wiki/Islamic_ban...

Edit: haan vanilla u r right there are banks running under Islamic laws but again they are not 100% accurate. some sort of interest is coming in. There was a good talk about it on QTV and also there comes a prog. called Islamic Banking on Hum t.v. if you can watch it.

its not just interest free banking, but its the most considerate system of banking, the bank will share your losses too, and your profits also. i know a few banks are trying to tell people that they are doing interest free banking, but actually they are catching the ear the other way around, and taking interest.. i too want to konw the real way of Islamic banking, good question.

Without riba' or dividen / interest.

No interest banking, no interest gained, and no interest charged.

dont u have an islamic bank ?>
here in Doha,Qatar we do have one ! :D

no usury

The brain lol, you must be an arab.

Swiss... so that allah doesn't know how much they got

tucking all your money under your mattress

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