GAZA CITY, Gaza Strip — Sumaya is standing in a line at a commercial bank in the Gaza Strip to ask about the possibility of applying for an Islamic loan with zero interest. She wants to buy a small apartment as an investment. Asked why she was looking into an Islamic loan, she said, “I have no intention of yielding to the exploitative gains of an interest-based loan. The money is more blessed when the Sharia is applied.”

Islamic banks in Palestine have been doing remarkably well over the past few years as a result of increased demand for their services. They have not only increased their market share of customers, but are also making more investments compared with their conventional, commercial competitors.

Islamic banks offer standard banking services like any other bank, in addition to certain finance tools specific to Islamic finance, that is, that comply with Islamic law. Among the latter are “mudaraba” (profit- and loss-sharing financing), “murabaha” (cost plus financing), “bai salam” (advanced payment contract) and “istisna” (manufacturing finance).

The key tenet of Islamic finance is that “riba,” interest paid on loans, is forbidden. Thus Islamic banking instruments are designed in such a way to avoid interest. For example, with mudaraba, a “silent partner,” the bank, provides financing to another “working partner,” the borrower, but instead of agreeing on an interest-accruing loan, they split any profit or loss according to an agreed-upon percentage. Through mudaraba, Islamic banks offer interest-free loans to enter into a partnership with borrowers when high risk is involved.