Banking in an Islamic framework

The development of banking, like the development of money, has eased the exchange of goods and the formation of capital. Banks are intermediaries in the financial system: they take savings from households and put them in the hands of firms. A mechanism that transfers saved funds to investors is necessary. The use of paper money and checks is quite indebted to the banking sector. In addition to intermediary services, banks facilitate transfers of money and store valuables safely. Because of the use of interest, an entrepreneur must pay funds in addition to the loan's principal. Ventures with modest profit margins, though good for society, are not undertaken. Since capital has a cost to the businessperson, prices are raised. Worse, if a venture fails, the entrepreneur alone bears the burden of the loss. Since the loss most likely is not completely the entrepreneur's fault, this is unjust. A profit-and-loss-sharing system abolishes these problems. Credit, in this system, would