Islamic banking is a banking system that differs from conventional banking in that the "sources and application" of funds are managed separately and differently and are compliant with principles of Islamic law. These principles of Islamic or Shariah law are consulted with and approved by a Shariah Committee or council. In Islamic banking, profit and loss is shared and collection or payment of interest is prohibited. Grounded in Islamic principles, all banking transactions and undertakings follow the morals of Islam.
Islamic banking utilizes concepts such as profit sharing, leasing and safekeeping.A profit and loss example that islamic banking may allow could be buying and selling of tangible assets such as property. In some loan cases, the borrower only pays back the principal amount to the lender.Islamic Banking is rooted in Islamic culture and prohibits certain types of investing. Investments in business and services that directly conflict with Islamic law such as alcohol, pork or gambling are strictly prohibited in Islamic banking. Islamic banking also prohibits speculative investing, making derivative instruments challenging to use in Islamic banking.