November 21, 2023

Islamic banking is a way of banking that is based on the observance of the religious rules of Shariah. In the holy book "Quran", there are 4 ayats that contain an explicit prohibition on usury ("riba") - the charging of loan interest when one party enters into transactions or makes a profit without expending any labor to obtain it. A bank, in the Islamic financial system, does not earn interest, instead it uses profit and loss sharing and risk sharing agreements. It becomes an investor rather than a creditor, sharing both the risks with the entrepreneur and the profits in agreed proportions. Islamic banking thus promotes ethical and fair financial practices that benefit both the bank and the customer.

The first banks based on Shariah principles emerged in the 1950s in Pakistan. A significant role in the spread of the Islamic banking movement was played by the establishment of the "Islamic Development Bank" in 1975 in Jeddah (Saudi Arabia), the main purpose of which is to support economic and social progress in the countries of the Muslim world.

Today, Islamic banking operates in more than 75 countries. Whereas in the mid-1990s, Islamic banks had assets of $150 billion, in 2021 they reached $4 trillion. Assets are expected to grow to $6 trillion by 2026. Malaysia has the largest share of total global assets (21.8%), followed by Saudi Arabia (19.5%) and the UAE (14.1%).