Introduction

Islamic banking derives its rule and compliance mechanics from the rulings of the Sharia, the divine law of God. Islamic banking came to be as a result of conventional banks dealing in usury (interest), which is sternly forbidden in Islam. Muslims are required to live a life of Godliness; there is no separation of religion and other activities. Islam is a way of life that encompasses every dynamics of human dealings.
Money is not considered as a commodity or having a time-line which moves according to interest rate fluctuations. Money is measured according to the value of goods and services for which it is exchanged during buying and selling. This is sanctioned by the Sharia.

Islamic banks operate on the basis of profit and loss sharing, the term "profit is for that which bears risk". Islamic banks completely reject interest as a cost for the use of money and loans as an investment vehicle. (aaoifi 26-27). This means interest as the central tool used by banks across the globe is illegal as an item for pricing money.

The Qur'an states that "trade is allowed and riba (usury or interest) is haram (forbidden)". Muslims live by the commandment of Allah. The forbidden things are avoided at all cost. Interests are the key determinant of modern banking in measuring and valuing transactions in the West and else where. The prohibition of riba is very clear in the Qur'an, just like alcohol or engaging in act of fornication or adultery. Why is it that riba or usury is part and parcel of the banking systems in muslim countries?

Dr. Umer Chapra stated that "due to the historical foreign occupation of most muslim countries, and particularly because of the domination of the world financial markets by Western interest-based system". Umer Chapra's statement touches on the fact that, the global super powers control the markets of the global economy. Money being a medium in trade, the measurement of money is also a vital fac... [Read More]