Islamic banks vs ‘regular’ (?) banks


I’m from Singapore and we have a significant Muslim population. However, it was only recently that I learnt Islamic banks existed. I was wondering if anyone could explain how they differ from regular banks or is the ‘Islamic’ part sort of a marketing ploy directed at the Islamic community? *Context: the first Islamic bank I encountered was HongLeong Islamic Bank, which has a ‘regular’ (?) counterpart.

In: Economics

Islamic banks follow sharia law.

IIRC there are no interests on loans. And the bank can’t invest in non-sharia ventures.

The very short version is that in Islam, there are religious rules that apply to banking activities. Two of the most visible rules include limitations/prohibitions on charging interest and prohibitions against investing in things not acceptable under Islamic religious principles.

A financial institution that advertises itself as an Islamic bank would comply with these requirements, which may be a selling point for Muslim clients who want to manage their money in a way that aligns with their faith.

I had a Muslim client explain it to me like this:

Back in the day, if you wanted to transport a bunch of goods across the desert but couldn’t afford to do it yourself, you went to a “bank” and they wouldn’t necessarily lend you money but would “participate” in the venture by putting up funds. If you were successful in your venture, they got a pre-arranged share of the profit. The bank essentially becomes your partner, with them putting up the $ and you doing the work. This way you both have an interest in hoping that you succeed.

He also told me that there are banks in Pakistan (where he’s from) that will charge interest on loans and pay interest to depositors. They get around it by paying off Mullahs who will say that the arrangement does not violate sharia law.

Basicly, theres no “interest”. In reality, just its a technical term workaround for banking.