Islamic Banking

In 99% of the Western World, paying interest charges is a way of life. Credit cards, home loans, car loans, student loans—whatever it is we’re paying off, chances are good that we’re paying interest on the debt. It’s partly how financial institutions stay in business: they make money off loaning us money. And for the most part, we’ve adjusted. We may not like it, but we’ve gotten used to it.

But under Islamic law, charging interest on loans is a big no-no. Interest, called “riba,” is seen as unethical, since it’s sorta kinda like the financial institution is taking advantage of the borrower. (That's the rationale, anyway.)

So what’s the alternative? Islamic banking. Islamic banks are set up so that borrowers don’t pay interest on loans; they simply share any profits they make with the bank that lent them the money. All equity; no debt.

But that’s not the only way Islamic banks differ from the Wells Fargo down the road. For one, that whole “interest is bad” thing also means that a savings account...won’t be accruing any. It’ll just sit there doing nothing until it's used. And two, if a cash holder wants to invest through an Islamic bank, they need to keep in mind that certain types of investments might not fly. Futures investing and buying shares in companies that operate in violation of Islamic law are two examples.