For all practical purposes, there is now no distinction between different forms or sources of interest. All interest, whether deemed usurious or not, is Haram. A Muslim is urged to receive only the principal sum loaned and that principal should only be taken back, subject to the ability of the borrower to repay. The distinguishing between interest and trade allows various Islamic financial instruments of 'mark-up' for deferred payment or early payment discounts, trade financing commissions and leasing type transactions, that fit neatly into a Western bank's balance sheet. However, the repayment principle 'only if the borrower is able to' makes lending an uncomfortable proposition.
Islamic loans are therefore more risky than conventional interest-bearing securitised loans.
The cost of capital is recognised in Islam as a production cost but that does not allow an interest on capital. The Islamic policy followed does not allow any addition to the principal sum, if the lender does not share in the risks involved. The capital provider may 'invest' through an entrepreneur borrower or Mudarib, hence the name of the structure. Profits are shared on a pre-determined basis but losses, if any, however, are wholly suffered by the capital provider. This financing structure is comparable to the Western non-recourse project finance.