Guided by the Sharia laws, Islamic banking is grounded on the belief that all types of interest are forbidden. Investing in businesses that deal in arenas against Islamic values – such as pork, alcohol, pornography, or ones that lead to gossip such as media – is completely prohibited. Speculative transactions are also banned by Sharia law. Because of these differences, regular banking financial instruments cannot be used in Islamic finance.
However, banking and finance under Islam have the same motives as conventional banking – to generate money for the banking organization by lending capital. Islamic finance focuses on keeping conventional banking within the boundaries outlined by Islamic law. As opposed to the basic principle of conventional banks of “transfer of risk”, the Islamic banks follow the principle of risk-sharing.
The laws of Sharia vary from country to country. While in some countries they are liberal, in other places they follow more exact interpretations.