The Islamic banking system

Although Islamic banking has operated for decades, its operations and methods remain enigmatic to Muslims and non-Muslims alike. Islamic banks manage to serve as financial intermediaries while adhering to the permissible and avoiding the forbidden, particularly riba (interest). The services Islamic banks offer their depositors/investors include transaction deposits, mudaraba (trust financing) investments, mudaraba financing, and musharaka financing. Investment Mudarabahs are analogous to shares in a company -- the depositor's return is linked to the institution's overall success. In mudaraba financing, one party supplies venture capital while the other party supplies the skill and time, with an agreement to share the profits of the firm. If the venture fails, the investor loses his capital and the manager loses only his time. In musharaka , both parties supply capital. Mudaraba and musharaka are typically best suited to large corporations.