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It is not what their depositors, or their borrowers, want.
Posted 5 August 2026
Many of my monthly columns for the magazine "Islamic Finance News" are inspired by questions or comments from readers or friends. My January 2026 column (reproduced below) was another example.
Many people believe that finance is not Islamic unless it involves the sharing of risks and rewards. I explained why it is naive to expect Islamic banks to operate that way.
A long-distance Muslim friend recently claimed on social media that Islamic banking was “bankrupt.” I have copied a brief extract below.
“…the core products … almost all of them replicate interest in economic substance… modern Ijara contracts fix rental payments to interest rates…What is missing … is genuine risk-sharing, … and profit linked to real economic performance… Losses are avoided. Time is priced...”
All people have to decide religious questions for themselves. While Shariah scholars are clear that fixed return contracts are permissible in Islam, I regularly encounter people making the same point as above.
My 10 August 2016 column "Why fixed return contracts predominate in Islamic banking" explained why fixed return contracts predominate in Islamic banking. As that was almost a decade ago, I am returning to the topic.
The key point complainers miss is that sometimes the parties to a financial arrangement both want a risk-sharing contract, and sometimes they both want a fixed-return contract. Remember, both parties need to agree to the terms before there can be a contract.
There is a wide spectrum of choice for how to allocate the risks and rewards of a business between those who create and run it, and those who finance it. It helps to consider two extreme cases.
Google was once a small startup, with a novel way of ranking the results of internet searches.
It would be irrational for any financier to provide millions in funding for the equipment and employees needed to develop this into a saleable service using a fixed return contract. If Google flopped, all the money lost would have come from the financier. If Google succeeded, the financier’s upside would be quite limited.
Instead, Google was funded by venture capitalists. Their finance was provided in the form of equity ownership. They still bore the risk of 100% loss on failure but now they also had scope for massive gains if Google succeeded.
The founders, Larry Page and Sergey Brin, were willing to give up a big share of the business’s upside, because otherwise there was no other way of developing Google. Venture capitalists are always wealthy individuals (and other entities such as university endowments) who can risk the losses from backing many failures alongside occasional big successes.
Compare this with a major airline seeking funds to acquire additional aeroplanes. It has expertise in managing aeroplanes and the peaks and troughs in customer demand. There is no reason for the airline to give away the upside in its business beyond the time value of money for the finance.
Conversely the Islamic bank providing the finance can accept the relatively low return from a fixed return contract (such as ijarah,) since the airline has a strong credit rating, and if the airline defaults the aeroplanes can probably be redirected to another airline. Accordingly, the bank’s risk of loss is very low.
Banks normally take their deposits from people who cannot afford to lose the money that they have deposited.
That is why banks don’t act like venture capitalists. Instead, they take on the limited risk they understand best, which is credit risk, and advance finance aimed at earning fixed returns with acceptably low credit losses. That enables their depositors to be relatively confident that their deposits will be repaid in full.
Depositors are not venture capitalists, don’t want to be venture capitalists, and in most cases cannot afford the losses venture capitalists must be willing to risk.
Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.
