ISLAMIC BANKING

What is Islamic Finance? and how is it different from the traditional Finance we are familiar with in the Western World?

There are two key differences:

The first and most famous (and on which we will focus the bulk of our attention) is the no-interest rule. That is, you can not earn interest on a loan nor be required to pay interest on loans.
The second difference is that money is to be invested only in worthy causes. This is largely equivalent to the western concept of socially responsible investing.
The Quran is the holy book of Islam (you can think of it as their bible if it makes it easier for you). In it, believers find the verses that forbid Riba (or interest). Alarijhi Bank has created a site (in both English and Arabic) that has the 4 key verses upon which the no-interest principle is based.
Many of the differences in Islamic Finance (especially Islamic banking) revolve around this no interest principle. For example, Islamic banks must take equity positions in homes rather than taking a traditional mortgage. Others examples include essentially profit sharing plans, leasing, and repurchase plans. These allow the Financial Institution to make money while satisfying the no-interest principle.

The second difference between Islamic finance and traditional finance is the emphasis on socially responsible investing. While in the western finical tradition there are many investors who invest in "socially responsible" means, Socially Responsible investing is not as wide spread as it is within the Islamic tradition.

Islam takes a holistic view of the person. Thus someone who is good does good things. This includes investing responsibly to assure that the money does not go
for "bad" purposes. These "bad" purposes include the usual subjects such as drugs, weapons, alcohol , porno and of course terrorism. Again this is really no different than traditional socially responsible investing.