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While searching for "How did Muslims operate Halal banks if there is no interest". I came to know that banks take some portions/share of profit. My question is that, how do they manage the share or the money if loan is taken for home, vehicles, etc...

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Bismillah.

Just to clarify for other users, Islamic banks really operate according to Islamic sharee’ah, and they do not deal with riba (interest) which is haraam (a sin), and they do not take interest in return for deferring payment, which is in fact the riba (usury) of the Jaahiliyyah, even if they call it by some other name, and they do not engage in transactions which are not acceptable in sharee’ah, such as selling what one does not possess, or ‘aynah sales or other kinds of transactions that are not permitted by sharee’ah. If a bank undoubtedly does not do these things, then it is halaal and dealing with it is acceptable according to sharee’ah.

The way Islamic bank operate might be a bit confusing for a person not used to dealing with them. Some people do not like dealing with these banks because they claim that they are too complicated. The main differences are the absence of interest and often complicated procedures to ensure compliance with Shariah law.

For example, in Islamic housing finance the risks involved are shared between the bank and the borrower, rather than transferring all the risk to the latter. The most commonly used contract is the diminishing musharaka (partnership) contract. In this case the bank and the borrower form a partnership, with the bank providing up to 95 percent of the purchase price, and the borrower 5 percent.

The borrower buys out the ownership share of the bank which makes its profit from the rent paid by the client for the share the bank owns. This happens over a period of, usually, 15 to 30 years.

Should the borrower default on a rental or principal repayment, the bank may advance the borrower an interest-free loan to enable him to continue their payments in anticipation that he will pay in full when he is able to. The good news is that during this period of distress, the borrower retains his home rather than face eviction.

Having said this, Islamic banks still appraise credit risk, and indeed are more cautious about who they finance than conventional banks.

Sources: 1, 2.

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