Islamic banking, also referred to as Islamic finance or Shariah-compliant finance, refers to financial activities that adhere to Islamic law Shariah. Two fundamental principles of Islamic banking are the sharing of profit and loss and the prohibition of the collection and payment of interest by lenders and investors. In Islamic banking, the banks do not collect interests from creditors. Instead, they earn money using equity participation systems and share profits and losses. Islamic finance is practiced in many Muslim countries and is extremely popular among Islamic communities, as some conventional banking practices might be against Shariah. Islamic finance is considered more ethical than conventional banking, as it believes that a bank and its clients should make profits and losses together. Hence, it does not just focus on maximizing the bank’s wealth. Also, Islamic finance practices consider the best interests of the Muslim community.

Islamic banking development can be attributed to some conventional banking theories and practices which go against and hurt the sentiments of the Muslim communities. Hence, Islamic finance was developed by inventing methods that are Sharia-compliant. Sharia is the Islamic law present in the Quran’s teachings. Creating practices that align with the Muslim culture and beliefs encourages many to take up banking. Islamic finance is so strictly followed that banks look to religious leaders and scholars for guidance. The main objective of Islamic banking and finance is that all society participants should create wealth and benefit. Usually, in conventional banking, some parties benefit at the expense of others. The Islamic banks are a clear exception to this.

In this course, we will learn Financial Modeling from Islamic Banking point of view.