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How Islamic Banking Work- Robin Trehan

Every aspect of Muslims lives are covered in the teachings of Islam. So when it comes to Islamic banking, you can be sure that there are various rules to follow in order to stay within the boundaries of the faith. According to Islam, bankers and other financiers are not allowed to charge interest and they aren’t allowed to invest in prohibited businesses that involve pork, weapons, gambling, alcohol and pornography. Here are some of the basic methods that are widely used in Islam:


Islamic bonds, also known as sukuk are backed by physical assets, such as cars, houses and other valuable belongings. These assets are used to pay a dividend or rent to the holder of the bonds; this is done instead of charging interest. Then like with the U.S., financiers purchase commodities and sell it to the buyer at a higher rate. Money has to made somehow, but as long as interest isn’t being charged, then it’s okay. Banks in Islam provides financing to entrepreneurs who are sharing profits of any venture. It is not required for the entrepreneur to put up capital. In some cases, the bank finances an entrepreneur that contributes capital; the profits from the venture are shared.


In leasing contracts, the bank leases out an asset to the leaser and an agreement is made on a price. Once the leasing period is over, the asset either is or isn’t owned by the renter. Agreeing on the sale of a something that doesn’t exist at the moment the contract is made is possible if the buyer requests the seller to make something for a certain price.


Islam is a strict way of life and requires a lot of commitment to the belief system. If anyone breaks any agreements or rules of business, let the punishment fit the crime. The people of Islam don’t revolve around money, but man doesn’t live by bread alone. It is a necessity, so there are strict guidelines in order to enforce fair trades and business practices. The banking system lends out a lot of money that’s used to build families and companies. Belief is strong in the Islamic community and a lot of people believe that faith will move mountains if its strong enough. But not everyone can be trusted as so, but the principle of doing unto others as you’d like done to you is one of the concepts of life and banking for Muslims.


Robin Trehan is management and financial expert. More information on him can be found at