Islamic Loan

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Islamic Loan

A loan that interest cannot be charged on. Instead, the loan is structured using discounts, sale or lease, profit participation, or repurchase agreements.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Islamic Loan

Any form of financing made according to Islamic law, which forbids the payment or receipt of interest. An Islamic loan may be an interest-free loan, but often it is a more complex transaction. For example, a bank could buy an asset for cash and then re-sell it to the "borrower" for a profit such that the profit is the same as the bank would have made had it extended a regular loan. Other types may involve the bank becoming a partner with the "borrower" so that both co-own the asset or business that the loan finances, and the borrower gradually buys the bank's share of ownership with a series of payments. Strictly speaking, most Islamic loans are partnerships or joint ventures, but they are called loans because they accomplish much the same thing as conventional loans. See also: Islamic finance, Murabaha, Mudharaba, Musharika.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Singapore: Fitch Ratings, Singapore, 12 February 2018: Malaysian Islamic banking loan growth continued to outpace conventional banking loan growth in 2017, underpinned by a supportive regulatory regime which aims to boost the share of Islamic loans to 40% of Malaysia's domestic loans by 2020, from 30%.
With respect to expectations for the June quarter, survey respondents predicted a further decrease in demand in conventional loans, housing -- investment, and Islamic loans. Change in credit demand is subject to factors such as change in income, financial markets outlook housing market outlook and interest rates.
Islamic loans are structured differently than conventional loans and are governed by different contracts.
Last year, SMBC started to offer Islamic financial products through its Malaysian subsidiary for which it set up an in-house Shariah advisory board in December, and Mizuho began offering Islamic loans in Malaysia in 2014.
Global Banking News-March 3, 2016--Maybank Islamic loans overtake conventional loans
The deal was done as a murabaha , a cost-plus-profit arrangement which is one of the most popular formats for structuring Islamic loans.
The value of Islamic loans is growing at an annual rate of 40 per cent which is likely to increase.
Loan growth accelerated to 34 per cent in 2013 against seven per cent for the industry with Islamic loans increasing to eight per cent of total system loans.
Islamic banks typically obtain their funding from retail deposits and short-term syndicated Islamic loans, but subordinated deals are increasingly being used as Basel III global banking standards are phased in across the globe.
Noor ranked number one in the latest Bloomberg's full year 2013 EMEA Islamic Loans Book.
Furthermore, a key assumption is that better quality of institutions might favor the use of Islamic loans. Islamic loans are particularly dependent on the quality of institutions because their implementation involves more legal costs than those associated with conventional loans.
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