Middle age woman using smartphone and credit card at street

Islamic banking operates on the principles of Shariah (Islamic law), which prohibits the charging or earning of interest (riba). Instead, Islamic banks offer a different concept known as profit-sharing or profit-sharing savings accounts.

In an Islamic banking savings account, customers deposit their money into the bank, and the bank uses those funds for Shariah-compliant business activities. The profits earned from these activities are then distributed back to the account holders as a return on their deposits.

The return on Islamic banking savings accounts is not guaranteed like the fixed interest rates in conventional banking. The actual return is based on the profits earned by the bank from its permissible business ventures. If the bank performs well and generates profits, the account holders will receive a positive return on their deposits. However, if the bank faces losses, the account holders may not receive any return or may even incur losses on their deposits.

It’s important to note that Islamic banking aims to adhere to ethical and Shariah-compliant principles, avoiding interest-based transactions and investing in businesses that align with Islamic values. This system provides an alternative banking option for Muslims who seek to follow Islamic financial principles.

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