How is Islamic finance different from conventional finance?
Islamic finance works differently to conventional banking and is regarded as ethical by those who use it. But how is it different and why is it considered ethical?
Unlike conventional finance, Islamic banks operate without interest, or Riba, which is forbidden in Islam. Instead, Islamic banks' activities are based on trade. They don't use risky, speculative practices but generate returns from relatively low risk physical assets, such as property and metals.
Using the principles of partnership and risk / reward sharing, relationships are built on trust, openness and respect. Customers know that their money will never be invested in industries that are prohibited under Sharia, such as tobacco, alcohol, pornography, gambling or arms. And at all times Islamic banks consider how they must behave, so that they act in the best interests of their customers, and society as whole.
Everything they do is routinely monitored by an external, independent panel of qualified Sharia scholars and an internal Sharia Compliance Officer. So Islamic banks offer a different way of doing banking, one that is relevant to anyone who is looking for an ethical alternative, not just Muslims.
At Al Rayan Bank we call this "Banking you can believe in".