[marcus_holmes]

The bit that isn't rules-lawyered away is that the risk is shared. For the deal to be compliant with the religious law, the lender must accept the same risk as the borrower, equally.

So I guess in this case if the house burns down and the insurance only pays 50% of the agreed value then the lender only receives 50% of their agreed repayment.

[pastel8739]

Isn’t there still risk for a lender in a typical interest-bearing loan? That the borrower will default?

[marcus_holmes]

Usually an interest-paying loan is backed by a guarantee, so the lender can pursue the borrower for repayment by claims on other assets.