Islamic banks aim for the mainstream
Key concepts in Islamic banking
The essential difference between western banking and Islamic banking concerns interest payments. There is a basic principle in Islamic law that exploitative or unfair contracts are unenforceable. This includes any contract which involves uncertainty, risk or speculation (gharar), or contracts that provide for the payment of interest (riba). Such agreements are not banned outright, but may be, depending upon the precise nature of the agreement. An eclectic body of Islamic law has built up to determine which contracts are enforceable, based upon the premise that the more exploitative a contract is, the less likely it is to be valid. The approach to private or business agreements has implications for bank accounts, loans, investments, insurance and stocks and shares.
The treatment of interest and speculative contracts varies between Muslim states, depending upon how strictly the traditional Islamic legal code of the Shari'a is enforced. Western lawyers must examine each legal system carefully because no two are the same. Some Muslim governments are prepared to deal in interest-bearing loans, but Iran prefers to raise funds by guaranteeing the payment of capital, and offering a share in the profits of any enterprise.