The trouble with the term “Islamic banking”

By: Liibaan Yusuf

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There are banks internationally that pass themselves off as Islamic banks, trying to cater to the Islamic community.

So, what is Islamic banking?

Before answering this question, you have to know what banking is. Banking isn’t as simple as it sounds. You’d think it would be as simple as putting your money in the hands of a reputable organization which will hold it for you, Right?


The world of banking is far more complex and complicated than it started as.

Modern banking dips its toes into many different areas such as home ownership, lending and interest. Interest will be the main focus of this article. What is interest in terms of finance and banking? According to, “Interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. It is distinct from a fee which the borrower may pay the lender or some third party”.

In Islam, interest is haram or forbidden. This hadith (saying), narrated by Abu Hurayrah, but written by Ibn Majah in “The Prophet”, said: “Riba (interest) has seventy segments, the least serious being equivalent to a man committing adultery with his own mother”. It’s extremely easy to understand the state of interest in Islam, it’s completely forbidden.

In the case of Islamic banking, interest is a joke or illogical. Interest, which is a pillar in the modern banking system, is impossible to stand together with Islam, where interest is vehemently opposed. It’s like water and oil, no matter how much you try to mix them they will never mix.

Safdar Alam, founder of Siyam Capital, speaks out about this in detail. “’Islamic banking’ is completely disattached to Islam, it’s redundant to call it Islamic as it goes about everything Islam has forbade. Islamic banking systems is NOT Islamic at the root and cannot be considered Islamic without changing the principals of Islam”.

So, the problem with “Islamic banks” is that they do actually charge interest, and therefore present themselves fraudulently as being Islamic. A true Islamic bank would not charge interest.

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