Definition: Islamic banking

External debt - IMF

Activities of Islamic financial institutions differ from those of standard commercial depository corporations in that predetermined interest on financial transactions is prohibited. As is evident from the definition of external debt, the nonpayment of interest on liabilities does not in itself preclude instruments from being classified as external debt. The classification of Islamic banking instruments as external debt, or not, can be determined by the following general guidance.

Islamic instruments—deposits include conventional and transferable deposits, such as Amanah and Qardhasan deposits—as well as various investment participation certificates that are not investments in the permanent capital of a financial institution and do not have the characteristics of tradable securities. 
Islamic instruments—debt securities consist of various investment participation certificates that have the characteristics of tradable securities and are not permanent capital of an institutional unit. Included in this category are the most tradable investment certificates recorded as liabilities of a financial corporation. 

Islamic instruments—loans cover arrangements in which a financial institution makes prepayments for clients, finances ventures or trade, or supplies working capital to clients. The arrangements may include short-term or other partnerships in which a financial institution is not making permanent, equity-type investments.
Source:
International Monetary Fund (IMF), "External Debt Statistics: Guide for Compilers and Users; Appendix I. Specific Financial Instruments and Transactions: Classifications", Washington D.C., 2003
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