Anyone who’s ever used a credit card knows you can’t borrow a dime without paying interest, but in Islamic finance, banks must find other ways to make money off their loans and other products. They usually do this by charging a service fee and/or engaging in profit-and-loss-sharing contracts. The most popular of such methods for home financing, for example, is called Murabaha, which is similar to rent-to-own schemes. A bank purchases a house for a customer and then sells it back at an agreed-upon markup.
Islamic finance is surging across the globe, gobbling up an ever increasing share of the more than $220 trillion in international assets outstanding. It’s a trend that has accelerated since the 2008 crisis shook confidence in conventional banking, prompting most of the world’s financial capitals from London to Dubai to join the battle to dominate the industry.