But paying back in installments for the markup would amount to interest towards the principle??? Doesn't it?
No it won't you need to understand the principle...
Interest, You borrow money to buy stuff and then pay that money back in the form of compound interest, some time the amount of interest exceed the actual amount if the installments are delayed for certain reason and in some cases, banks hold the right to increase the interest rate, with the increase in the rates by the central bank, normally this condition is written in FONT SIZE 2, so that no body can read it and object on it. Hence the payer is never sure how much amount in interest he is going to pay to set himself free...
Islamic Markup, it is equivalent to Profit anyone would charge on their commodity available for sale, if you want to buy a car, Islamic bank won't give you money to buy car, they will buy it for you, the car will later sold to you on profit, you know much amount you are going to pay over the period of time, and in case you delay a payment, then you have to add the missed payment, and have not to pay any CHARGE on the missed amount, unless and otherwise you have agreed.
Now if somebody use the name ISLAMIC BANKING and do charge compound interest than it is not ISLAMIC... although few banks i know, do practice this...