Islamic banking unveiled

Islamic banks' contracts, operations and transactions are carried out in accordance with Islamic shari`a (Law). The fundamental principle underlying the shari`a approach to finance is that on one wishing to earn a return on money has any right to retain the initial sum intact: to earn a profit it is necessary to take a risk. In practice, shari`a means that Islamic finance is asset backed, so the foundation of Islamic banking is asset management. Once the basic tenet of Islamic finance (ie, the prohibition of riba , or interest) is understood, the most common activities are no different to those undertaken by many conventional banks.