We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Islamic Financing?

Mary McMahon
Updated Jan 23, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Islamic financing is a form of financing which conforms with Islamic laws surrounding money and the practice of doing business. Islamic financing is also known as Islamic banking, and numerous financial firms around the world offer Islamic banking to Muslim customers, especially in the Middle East. You don't necessarily have to be Muslim to take advantage of Islamic financing, however, and some non-Muslims find the terms of Islamic financing to be more agreeable than those of secular banking and financial arrangements.

Two issues in Islamic law are of concern which it comes to Islamic banking. The first is riba, which is commonly translated as “usury,” better known as “exploitative interest.” Islamic law specifically prohibits charging or paying interest, and since most loans include a rate of interest, devout Muslims cannot use traditional financing to buy cars and homes or to finance an education. Muslim law also prohibits involvement in haraam or forbidden business practices, which include the manufacture and sale of alcohol and pornography.

Banking institutions which offer Islamic financing pledge not to involve their funds in haraam industries, so that Muslims can avoid the taint of forbidden businesses. They also use a variety of creative techniques to get around the prohibition on paying interest so that Muslims can still get loans and financial assistance.

For example, a bank might buy a home or car and lease it to a customer, or sell it in installments, for a profit. Since the bank is not charging interest, the loan is considered to be acceptable. A bank might also offer a business loan in return for a share of the profits for a set period of time, distinguishing this as a fee, rather than as interest. A variety of other techniques may be used in Islamic financing to connect the Muslim community with sources of loans which can be used for improvement.

Islamic financing started in Egypt, and spread from there through the Middle East as Muslims began to see the appeal of religiously acceptable financing. There is some debate in the Muslim community as to whether or not Islamic financing is fully acceptable, however. Some people argue that riba is a term with a fluid and unclear definition, and that the Qu'ran prohibits involvement in loans in general, not just usurious interest. Others feel that without Islamic banking, the Muslim world would not have an opportunity to compete on an equal footing due to a lack of financial liquidity, so Islamic financing's benefits outweigh the possible drawbacks.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.