After the Islamic Revolution, the Central Bank was mandated to establish an Islamic banking law. In 1983 the Islamic Banking law of Iran was passed by Majlis. This law describes and authorizes an Iranian Shiite version of Islamic commercial laws (as differentiated from a less 'liberal' Sunni version). According to this law, Iranian banks can only engage in interest-free Islamic transactions (as interest is considered usury or "riba" and is forbidden by Islam and the holy book of Qur’an). These are commercial transactions that involve exchange of goods and services in return for a share of the "provisional profit" called Mobadala.
In practice, Iran uses what are officially termed "provisional" interest rates, as rates paid to depositors or received from borrowers should reflect the profits or losses of a business. Under these rules, deposit rates, known as "dividends", are in theory related to a bank's profitability. In reality, however, these dividends have become fixed rates of return—depositors have never lost their savings because of losses made by the banks and almost never received returns larger than the provisional ex-ante profit rates. Interest charged on loans is presented as "fees" or a share of corporate profits. All such transactions are performed through Islamic contracts, such as Mozarebe, Foroush Aghsati, Joalah, Salaf, and Gharzolhasaneh. Details of these contracts and related practices are outlined in the Iranian Interest-Free banking law and its guidelines:
Gharzolhasaneh: An interest-free, non-profit, loan extended by a bank to a real or legal person for a definite period of time.
Joalah: The undertaking by one party (the jael, Bank or employer) to pay a specified money (the joal) to another party in return for rendering a specified service in accordance with the terms of the contract. The party rendering the service shall be called "Amel" (the Agent or Contractor).
Mosaqat: A contract between the owner of an orchard or garden with another party (the Amel or Agent) for the purpose of gathering the harvest of the orchard or garden and dividing it, in a specified ratio, between the two parties . The harvest can be fruit, leaves, flowers, etc. of the plants in the orchard or garden .
Mozaraah: A contract where the bank (the Mozare) turns over a specified plot of land for a specified period of time to another party (the Amel or Agent) for the purpose of farming the land and dividing the harvest between the two parties at a specified ratio.
Mozarebe: A contract wherein the bank undertakes to provide the cash capital and other party (the Amel or Avent) undertakes to use the capital for commercial purposes and divide the profit at a specified ratio between the two parties at the end of the term of the contract.
Shariah-compliant assets has reached about $400 billion throughout the world, according to Standard & Poor’s Ratings Services, and the potential market is $4 trillion. Iran, Saudi Arabia and Malaysia are at the top with the biggest sharia-compliant assets.
According to the IMF, Islamic banking forbids pure monetary speculation and stresses that deals should be based on real economic activity and therefore poses less risk than conventional banking to the stability of financial systems.