Islamic banking is in fact the banking activity that is governed by the Islamic law called (Shariah). Islamic law prohibits the collection and payment of interest called riba in Arabi. Islamic law also prohibits investing in businesses that are considered haraam such as businesses that sell alcohol or businesses that produce media which are contrary to Islamic values. In the late 20th century, a number of Islamic banks were created, to cater to this particular banking market.

Islamic banking has the purpose to operate in accordance with the rules of Shariah. The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba. The common Islamic concepts used in Islamic banking are PROFIT SHARING (MUDHARABAH), SAFE KEEPING (WADIAH), JOINT VENTURE (MUSHARAKAH), COST PLUS (MURABAHAH) and LEASING (IJARAH).

In an Islamic Banking to mortgage anything a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments and there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. Islamic banks handle loans for vehicles in a similar way.