According to the shariah authorities who control the world of shariah-compliant finance, Muslims are not allowed to impose or pay interest in financial transactions. (There is actually a little controversy about this. Some claim that usury is banned in Islam, but not all interest. However, as long as the Islamists control the Islamic world, that view will be stifled.)
So, how do banks make money by lending money if they can’t charge interest?
Through smoke and mirrors–a system known as murabaha. Murabaha amounts to a convoluted construction of fees and charges which, at the end of the day, creates a scenario that adds up to interest payments! For instance, in mortgages in the US, customers routinely take the interest deduction from their federal income tax for murabaha.
The actual result is an opaque system of charges which usually result in the customer getting charged more than conventional loans.
Murabaha is also used in interbank transactions, such as this article about Malaysia explains…
