In any event, one of the banner ads in the Financial Times brought me to this HSBC site hawking Islamic banking products. Here's a sample; figure out for yourselves what the difference is from regular banking. As I've said, it's beyond me...
Mudaraba [="venture capital"?]
A mudaraba transaction is an investment partnership. In a mudarab arrangement, the contract is between an investor (or financier) and an entrepreneur or investment manager known as the mudarib. Risk and rewards are shared. In the case of a profit, both parties receive their agreed-upon share of the profit. In the case of a loss, the investor bears any loss of capital while the mudarib loses his time and effort.
A generic mudaraba process could take the following basic form:
- Step 1: The investor and the mudarib agree on the nature of the venture and the terms of profit sharing.
- Step 2: The investor provides capital to the mudarib.
- Step 3: The mudarib undertakes the venture agreed upon between the parties
- Step 4: Profits from the investment are shared between the investor and the mudarib
An ijara is an Islamic lease. The bank purchases an asset and leases it to a client for fixed monthly payments. An ijarah may include an option for the lessee to buy the asset at the end of the lease, though such a provision is not required.
A generic ijarah process could take the following basic form:
- Step 1: The bank and the client agree on the terms of the lease.
- Step 2: The bank purchases the asset from the seller.
- Step 3: The client leases the asset from the bank, paying a fixed monthly rental
- Step 4: The client purchases the asset from the bank at the end of the lease period.
Murabaha [="installment purchase"?]
A murabahah transaction is a sale at a stated profit. In a murabahah transaction, the bank purchases something from a third party and sells it to the client at a stated profit on a deferred payment basis. In this way, the client can buy something without taking an interest-based loan.
A generic murabahah process could take the following basic form:
- Step 1: The client expresses intent to engage in a murabahah transaction facilitated by the bank and, subject to bank approval, signs a "Promise to Buy".
- Step 2: The bank purchases the item from the seller.
- Step 3: The client purchases the item, in instalments, at the purchase price plus a stated profit.