A guide to Islamic banking

Date of this Version


Document Type

Book Chapter

Publication Details

Citation only

Ariff, M. (2011). A guide to Islamic banking. In B.E. Gup (Ed.), Banking and Financial Institutions (pp 255-278). Hoboken, New Jersey: John Wiley & Sons Inc.

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© Copyright Benton E. Gup, 2011. All rights reserved.




This chapter is a guide to the essential operating principles and practices of Islamic banking in some 80 countries in the world. This simplified introduction focuses on how such banks make profits following two fundamental methods of pricing their services: (1) Bank deposits and investments are priced using profit-loss-risk-sharing (PLS) contracts in place of interest in conventional banks, and (2) mortgages, leases, and banking services are based on fee and markup instead of interest/fees. The central theme is that this new form of banking that began in 1963 has grown to the present size of about US$500 billion in equity, with total assets of US$4,000 billion, making profits successfully in many legal jurisdictions as a new form of pricing banking products.

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