Islamic Financing or Asset-Based Financing

A key feature of Islamic banking is that unlike conventional banks which deal primarily in money and financial securities, Islamic financing is related to an asset that is a feature of the transaction, and quite often the principal feature itself. From this springs an important distinguishing feature of Islam wherein Islamic financing is always based on illiquid assets that have intrinsic value. Profit to Islamic financing is generated through bonfire sale of these assets.

Conventional banking, on the other hand, is free of such limitations. It lends money and makes its earnings through this act of lending. Its earnings are unconcerned with the economic fate of its lending.

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