Islamic banks lend funds based on trade (i.e., real economic activities) rather than pure finance. In other words, they act as genuine traders who help consumers and investors acquire desired goods/commodities/assets. This trade-based financing involves real goods and services whether through sale (ba’i such as murabaha or cost-plus sale) or agency (wakalah). That means Islamic financing is backed by real goods or assets. Transactions that have no such real or physical assets are considered by shari’a null and void ab initio (originally and essentially batil). Islamic banking effectively helps ensure stability in the value of money and also helps prevent speculation and manipulation. The fund flows through Islamic financial modes of financing are linked directly to the flow of goods and services in the economy. Hence, the movement of funds in an Islamic economy is based on real fundamentals and takes place in a slow but sure manner contrary to the case with conventional economies where interest-based short term funds swing in sudden fits and large proportions that usually wreak havoc in the financial sector and the broader economy.

The prohibition of riba and the permissibility of trade (and real economic activities) necessitate linking profit and risk (al-kharaj bid-dhaman and al-ghunm bil ghurm) to circumvent transactions in which money creates money. To avoid any involvement in such transactions (ribawi transactions), Islamic banking uses modes of lease (ijarah), fee-based contracts (commissions) as well as investment modes (istithmar). As such, the relationship between an Islamic bank and its clients may be in the form of buyer and seller, principal and agent, lessor and lessee, transferor and transferee, guarantor and guarantee, depositor and custodian/depositee, and partnership (partner to partner).