The principle: All Islamic banking products must adhere to the basic principle that money cannot be treated as a commodity, and must be used productively with the rewards shared between the client and the bank. Islamic banks cannot charge any interest.
New products are being developed all the time, and some withdrawn, according to laws laid down by the sharia councils of Islamic institutions. However, most relate to the following basic products:
Murabaha: This is used for short term finance, and involves the bank importing and paying for a product on behalf of a client. The bank is liable for the imported goods until the client pays for it, and in return for holding this risk charges the client a higher price for the goods.
Mudaraba: This involves fund management, whereby a client places funds at the disposal of a bank which has the skills to invest it. The profits are shared with the bank according to a prearranged agreement, and fees are charged in return for the skills employed.
Musharaka: This means partnership, so that both parties share in the risk. Both bank and client contribute to a joint venture project sharing in profits or losses related to the proportion of the commitment.
Ijara: This is the Islamic equivalent of leasing, and is little different from the conventional use of the term. The client pays regular instalments to pay for goods bought by the bank. This is usually used for modest purchases. The same basic principle can also be applied to pay for larger goods or project costs and is called Istithna.