It is widely known that Shariah-compliant institutions and transactions are forbidden from dealing in interest, either charging interest or paying interest.
Sometimes, as we’ve pointed out on SFW many times over the years, the industry fraudulently declares that its loan mechanisms are “interest-free.” This implies that Shariah-compliant institutions lend money for free.
Nothing could be further from the proof. Shariah loans do involve charges and fees–and very often those charges and fees exceed the cost of conventional loans.
The inability to charge or pay interest has hurt Shariah finance in that it has inhibited liquidity. Shariah institutions are prevented from the short-term tools and instruments that conventional banks and other institutions use to lend each other money overnight.
Now, the Shariah financial industry is creating convoluted tools by which they seek to facilitate such short-term agreements, without involving interest.
We’ll leave it to the readers to decide for themselves whether the explanation provided and the link below is decipherable. We think it illustrates how convoluted the system is. At the end of the day, Shariah institutions are still charging for money, they’re just not calling it interest.
Now, see if you can figure out how it works…