Islamic banking products should be able to make evident the three elements of risk, effort and responsibility to claim Shariah legitimacy. Otherwise, the religious labeling is inaccurate and may fail to reflect the morality of the Islamic banking business.

The concept of Islamic Banking lies in the verse of the Holy Quran that says, “Allah has allowed trade (al-bay’) and prohibits riba (interest or usury)” (Al-Baqarah: 275). This means profits created from trade are permissible while profits (i.e., interest) created from loans are not. Today, the business of banking is essentially generating profits from loans. Banks borrow from the public by selling their deposit products and make interest-bearing loans from these deposits. The difference between interest revenues and interest expenses (i.e., cost of deposits) constitutes a bank’s profit.

The manner in which traditional banks’ profits are generated has become the main argument against the legitimacy of interest income. For one, the loan is secured by way of collateral and guarantees. In this way, a bank is categorically free from bearing any risk of losing the principle loan and interest income. The bank is also not responsible for any liabilities withholding the borrower. If the borrower had difficulties in paying his monthly payments, he is left alone to attend to his problem as the bank is not concerned about his state of being. This is the morality argument besieging the traditional banking business.

The Analyst Magazine, Islamic Banking, Ghorm, Islamic Banking Business, Daman, Traditional Banking Business, Principles of Trading and Commerce, Operating Expenditure, Islamic Banking Products, Kasb, Universal Banking Model, Anglo-Saxon Banking System.