One unfortunately all-too common practice in the Shariah Finance industry is to tout “interest-free” banking and instruments, mortgages and loans in particular. This implies that there is no charge for borrowing, which couldn’t be further from the truth. The reality is that charges and fees associated with Shariah-compliant loans are typically more than interest charges in conventional loans.

The misuse of the terminology works both ways as well.

The industry also touts that Shariah-compliant investments and instruments do not pay interest. Nevertheless, they pay something and, if it is simply profits or dividends that they are paying out, then they should correctly be classified as an equity instrument, with all the associated risks that is entailed. But you don’t see that at all. This contributes to a general misunderstanding of the way the industry works and there is no apparent effort by the industry to set the record straight or to properly educate investors. This is something that the conventional investment industry could never get away with…

http://www.nation.com.pk/national/13-Mar-2014/experts-stress-interest-free-banking

 

 

 

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