Answer
Wa `alaykum as-salamu wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
A Muslim is not allowed to resort to interest-based finance. Islamic finance, therefore, creates credit with no interest loans.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
Islamic finance creates credit similar to conventional interest-based finance but while the latter uses the loan contract, the Islamic finance uses other credit creating contracts such as sale and leasing.
There is a big difference between lending and sale on credit. In brief, it is tied to the real market while loan only transfers ownership.
The Islamic system does not need the Jews to give loans because it is based on giving credit through the real production (sharing contracts, i.e., venture capital) and through exchange on credit (sale and leasing).
Loan remains only an act of charity or benevolence while earning through finance is air-tied to real production and exchange.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.