Islamic banking and finance

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Islamic banking, Islamic finance (Arabic: مصرفية إسلامية masrifiyya 'islamia), or Sharia-compliant finance^[1] is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economics. Some of the modes of Islamic finance include mudarabah (profit-sharing and loss-bearing), wadiah (safekeeping), musharaka (joint venture), murabahah (cost-plus), and ijarah (leasing).

Sharia prohibits riba, or usury, generally defined as interest paid on all loans of money^[2][3] (although some Muslims dispute whether there is a consensus that interest is equivalent to riba).^[4][5] Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haram ("sinful and prohibited").^{[citation needed]}

These prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices. In the late 20th century, as part of the revival of Islamic identity,^{[6][Note 1]} a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.^[8][9] Their number and size has grown, so that by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles,^[10] and around $2 trillion was Sharia-compliant by 2014.^[11] Sharia-compliant financial institutions represented approximately 1% of total world assets,^[12] concentrated in the Gulf Cooperation Council (GCC) countries, Bangladesh, Pakistan, Iran, and Malaysia.^[13] Although Islamic banking still makes up only a fraction of the banking assets of Muslims,^[14] since its inception it has been growing faster than banking assets as a whole, and is projected to continue to do so.^[11][15][16]

The industry^[ambiguous] has been lauded^{[by whom?]} for returning to the path of "divine guidance" in rejecting the "political and economic dominance" of the West,^[6] and noted as the "most visible mark" of Islamic revivalism,^[17] its most enthusiastic advocates promise "no inflation, no unemployment, no exploitation and no poverty" once it is fully implemented.^[15][16] However, it has also been criticized for failing to develop profit and loss sharing or more ethical modes of investment promised by early promoters,^[18] and instead merely selling banking products^[19] that "comply with the formal requirements of Islamic law",^[20] but use "ruses and subterfuges to conceal interest",^[21] and entail "higher costs, bigger risks"^[22] than conventional (ribawi) banks.

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