Malaysia: Islamic Banking

Malaysia is considered the epicenter for Islamic-style financial services, which are becoming popular internationally. (Malaysian government census figures place the country’s Islamic population at around 59 percent.) Sharia, or Islamic law, considers interest payments a form of usury because depositors and lenders earn a profit without providing labor or sharing in the risks involved. Islamic banking has circumvented that restriction with a provision that allows those players to share in the bank’s profits. The bank then pools deposits to invest in construction, commodities trading and other businesses that do not generate interest payments. This means that commercial banks and their depositors do not technically receive any interest. Because losses are also possible, this arrangement involves some risk, and thereby gets around the Sharia’s prohibition.

Lesson Plan