Islamic Finance - Unlocking Growth Through Ethical Banking - Webinar by The Soltesz Institute

In this Webinar by The Soltesz Institute with Zubair Mughal from AlHuda Centre of Islamic Banking & Economics a and Viktoria Soltesz we disucssed why Interest-Free Banking deserves attention.

This topic is often misunderstood but increasingly relevant for anyone working with international payments – Islamic finance. In this practical conversation we opened up how Islamic financial institutions operate, what makes them different, and how these differences impact payments, banking, and global finance. Islamic finance offers an entirely different approach to traditional banking, and the scale is far from niche – with over $4.5 trillion in assets globally and more than 6,000 institutions operating across 120 countries.

No Interest

In traditional banking, credit products are based on charging interest. In Islamic finance, the revenue model is built differently. Instead of lending money and earning interest, banks use business-based structures. 

• In profit-sharing partnerships like Musharakah and Mudarabah, the bank and the client share profits – and losses – from a real business activity. 

• In sales-based products like Murabaha, the bank buys an asset and sells it to the customer at a marked-up price, allowing the customer to pay in instalments. 

• In lease-based models like Ijarah, the bank retains ownership of an asset and charges rent over time.

Each of these models must exclude interest, gambling, and excessive uncertainty. This structure drives more ethical and stable financial practices. Islamic banks become more than just lenders: they become participants in their clients' success.

Payments, Transfers, and the Real-World Challenges

One of the growing challenges Islamic banks face is limited access to compliant payment infrastructure: whether it’s expensive remittance fees, lack of access to global payment gateways, or additional compliance hurdles, Islamic financial institutions often face roadblocks that conventional banks do not.

However FinTech has stepped in to fill this gap. Islamic FinTechs are emerging across Africa, Asia, and even Europe, offering alternative payment and finance solutions tailored for Sharia-compliant users.

Modern Financial Products Without Interest 

Buy Now Pay Later (BNPL), credit cards, and embedded finance are reshaping retail finance across the world, but how can these exist without interest? Islamic finance has answers. Instead of interest-based loans, BNPL schemes are structured using cost-plus sales contracts. Credit cards, where available, are issued with fixed fees or use structures like Ujrah – a fixed administrative charge – instead of interest. Most Islamic banks do not issue credit cards at all, sticking to debit cards to stay compliant. 

How Do Islamic Banks Actually Work? 

The system is structured around asset-based transactions where the bank pools deposits and uses them to finance real economic activity, whether that’s selling goods under Murabaha or leasing assets under Ijarah. Profit generated from these activities is then shared with depositors. Unlike interest-based finance, where returns are fixed regardless of performance, Islamic banking ties everything back to actual economic output.

This gives a stronger resilience. During the 2008 financial crisis, Islamic banks remained largely unaffected because their transactions were tied to tangible assets and not speculative financial instruments.

Takaful: Insurance with a Different Logic

Islamic insurance (called Takaful) follows the same ethical logic. Traditional insurance includes elements of uncertainty, gambling, and interest, which makes it non-compliant under Sharia rules. Takaful, by contrast, is a mutual risk-sharing scheme where policyholders contribute to a fund that is used to support members in need. Globally, over 498 Takaful operators exist across 72 countries so the market is significant, but we still do not have enpugh supply for the demand.

Who Regulates Islamic Banks? 

With so many differences in structure and operation, regulation is essential, but only a few countries offer full regulatory frameworks for Islamic finance. Others have partial or no frameworks, leaving Islamic banks to rely on self-regulation guided by international standards.

Mr Mughal highlighted the role of bodies such as AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and IFSB (Islamic Financial Services Board), which create global standards on auditing, governance, and Sharia compliance. On top of these, major development organisations like the Islamic Development Bank, World Bank, and regional banks offer technical support to help develop regulatory systems.

Future of Islamic Finance 

Islamic finance is not lagging behind in technology. Blockchain, AI, core banking systems, cloud computing, Metaverse - all are being integrated into Islamic financial services, provided the process flows are Sharia-compliant. These innovations aren’t limited to Muslim countries. Tech-forward Islamic finance is spreading globally, with providers now offering full-service solutions in the UK, Malaysia, Kuwait, and beyond.

While most Islamic finance training happens in English or Arabic, there’s a clear need for materials in Spanish, French, and Russian to open access further. Too many people, including financial professionals, confuse Islamic finance with religion, rather than understanding it as a financial system. More formal education, training, and multilingual programmes are needed to build the workforce, and to bring this model to markets where it’s not yet present.

The Untapped Potential

Islamic finance can be also seen as a tool for inclusion as even non-Muslims choose Islamic financial products because of their transparency, risk-sharing, and ethical foundations.

To watch the full webinar visit https://www.solteszinstitute.com/course/islamic-finance

The Soltesz Institute also offers EU accredited Islamic Finance Courses.