Islamic Finance - taking care of consumer demands
IFIs have to create a banking system without using the interest mechanism since Shari'ah law expressly forbids both receiving and paying interest. However, this condition must be viewed in light of three crucial facts: 1. When shareholders in these IFIs invest their money in an Islamic bank, they expect a Return on Equity (ROE). 2. Islamic banks must be successful in raising money to finance the economy's business and retail sectors. 3. Like conventional banks, the majority of Islamic banks aim to turn a profit. Applying Islamic commercial law flexibly is necessary to meet these three criteria. Islamic business law does not preclude it from meeting a commercial requirement that is often met by a loan contract since it forbids lending money in exchange for interest. In Islamic finance, as opposed to conventional finance, where the borrower agrees to repay the principal plus an additional sum of money known as interest, the financial institution will finance the customer for the purchase of, say, a car or house or provide a letter of credit through sales, leasing, or other types of contracts.
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