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Greetings!!
The core principle governing Islamic Banking is that Money cannot create Money. It means that if one is keeping money in a fixed deposit or savings account with an assured return of x% over a period, is not acceptable.
In Islamic Banking, any type of "Interest" as we understand in conventional banking , is strictly forbidden. The money needs to be invested in certain assets with consequential risk or return which is to be shared by the investor. Assured return in any form is not acceptable in Islamic Banking.
The concept is more close to mutual funds or venture capital financing and additional rider that the underlying investments should be in 'ethical" "shariah" compliant instruments/companies. Investing in industries such as breweries is prohibited under Islamic Banking.
It is a vast field and today Islamic Banking industry is growing at a rate of 12% apprx. annually. There are instruments available in Retail and Corporate Banking, Trade Finance etc..
Thanks
Mohammed A.Alam
Head of Portfolio planning,
The National Commercial Bank
Head Office, Jeddah
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