Islamic and Western banking: Part I - Major features, structural forms, comparison with Western banks, riba

Two fundamental principles underlie Islamic banking: first, that Islamic law necessarily affects all aspects of the Muslim's life, and second, that Islamic banking is inextricably linked to spiritual values and social justice. The prohibition of riba, or 'usury,' lies at the core of Islamic banking. What exactly constitutes usury is still debated among scholars today. Since customer deposits also cannot accrue interest, two forms of deposit accounts have emerged: savings deposit accounts and investment deposit accounts. The investment activities of Islamic banks are based on risk sharing instead of on fixed returns. Examples of these types of investment include mudaraba (where one party offers capital while the other offers labor), musharaka (similar to an equity investment), murabaha (where the bank actually purchases goods and sells at a mark-up), ijara (where the bank leases assets to customers), and salaf (an advanced cash purchase of products). Islamic law also prohibits investme