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Charging interest is the way bankers around the world make their money - except, that is, in the booming business of Islamic banking.

The Koran bans interest. And it bans lending money if the loan is not for a productive purpose.But Islamic bankers have found a way of lending money without charging interest. Borrowers pay a fee instead.

Since the first Islamic bank opened in the Nile delta 25 years ago, the system has spread to more than 70 banks controlling between $25 billion and $30 billion.

There are Islamic banks throughout the Middle East and Asia, in Europe and even in New Zealand. Iran and Pakistan say their whole economies have switched to Islamic principles.

The key is that charging a fee for providing a productive loan addresses Islam's concern about the moral consequences of usury.

"Money is not an end in itself, it is a means to an end," explains Saudi Prince Mohammed al-Faisal, chairman of Dar al-Maal al-Islami, the biggest Islamic banking group.

Dar al-Maal al-Islami was founded in 1981 in Geneva and now has a portfolio of $2 billion, invested in projects that range from 25 Islamic banks to a plant that makes watches which chime at Moslem prayer times and show the direction of Mecca.

Western skeptics say Islamic banks charge interest by another name.

Islamic bankers say the cost may be similar but argue that their system, with its emphasis on how money is used instead of on the money itself, is different and offers an alternative system for the world's 800 million Moslems.

"It must be remembered that the Western system has had hundreds of years to develop...Our goal and philosophy are long term," Faisal said.

But Faisal and other top Islamic bankers meeting in London last month found the system was still loosely defined and that it faces a number of practical problems.

One is that Islamic banks have so far failed to move from short-term financing of trade to longer-term lending for developing nations.

Another problem is inflexibility: there are few Islamic bonds or bank deposits through which lenders can store their funds.

And there is still much controversy over defining Islamic financial transactions and over how the Islamic system should relate to the rest of the world.

"You can talk to 10 scholars and get 10 interpretations," said Mohammed el-Hennawi, chief economist at the Saudi-based Islamic Development Bank (IDB), owned by 44 Islamic countries and the biggest transnational Islamic bank.

Hennawi said a board of 140 Islamic jurists this year agreed to a three-page Islamic banking code after years of debate. But even the smallest query will have to be settled in plenary session.

Islamic financial instruments to take the place of stocks and bonds - like "modaraba" equity participations, "mosharaka" profit-sharing, and "ijara" leasing arrangements - have proved hard to define in detail.

Disagreements between bankers also tend to reflect political and religious divisions in the Islamic world.

Hardline IDB and Saudi bankers envisage a totally Islamic common market, do not recognize the Western banks' funds as Islamic and are cautious about any non-Islamic business links.

Money-starved African Moslem nations do not necessarily agree.

Some Western bankers, meanwhile, are intrigued by the system, arguing that the failure of many small businesses in their countries suggest that Islamic principles of sharing risk make economic sense.

One financier who has switched to Islamic banking is Paul George, a born-again Christian in New Zealand.

"Our market was dying, with high interest rates killing off companies," George said. "Our own system is not working, so I thought, why not try this?"