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Please give a brief regarding Islamic banking?

Answered as per Hanafi Fiqh by ShariahBoard.org
Please give a brief regarding Islamic banking? For example if I want to take a loan for building a house then how an Islamic bank should function? (Saudi Arabia)
Those banks that are in consultation with us have acquired both methods. One method is out of ‘murabaha’ the other is of ‘musharaka’. The meaning of the first one is that instead of financing something the bank purchases the product then puts a profit margin to its price then sells it. The bank puts its profit to the price of the commodity and tells the buyer the allocation of the proceedings and its manner.

So, we have suggested this to the banks that instead of charging interest on a loan buy something and become owner of it and then resell it with a profit margin.

The second method is that both the customer and the bank will be shareholders in the property proportionate to their investments. For instance, the customer invests 20% and the bank invests 80% of the property value, so, their partnership would be divided proportionate to their investment. So the bank rents out 80% of its property to the customer and the customer slowly buys off the share of the bank by paying additional amount to the rent amount. Likewise, the ownership of the bank decreases while the ownership of the customer increases. Similarly, as the ownership of the customer increases the rent amount decreases, until, the customer owns the entire property. This way, this relationship will be brought to an end.

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This answer was collected from Shariahboard.org. It was established under the supervision of the eminent faqih of our era, Hazrat Shah Mufti Mohammed Navalur Rahman damat barakatuhum.

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