by Khair Bakhsh

Created on: March 15, 2008

Islamic Banking is a unique system of banking or banking activity that is different from the conventional banking of the world by many ways. It is based on Islamic law of economics and works in such a framework that follows certain rules and regulations, determined by various prominent Islamic scholars and economists.

Islam is a complete religion. It prohibits usury, the collection and payment of interest, trading in financial risk (gambling) and investing in such businesses that are against the general principles of ethics. In replacement of all such menaces, Islam presents many solutions through its law of economics and Islamic Banking is nothing but just an example of this practicable framework.

The Islamic banking and finance sector is increasing its valuable market share day by day in global finance industry. Today, over 300 Islamic banks and finance organizations are successfully running their businesses from Dubai, Las Angles, London, Karachi, Jakarta, Cairo, Riyadh and many other cities in the world. Total assets of all these are well reached of a mile-stone of 400 billions dollars.

This is a big misconception that there are no differences except the name between Islamic and conventional banking. The differences between these two systems are both ethical as well as technical. The ethical difference is the Islamic concept about the ownership of wealth. According to Islam, the real owner of wealth is always Allah (The Almighty God) and human are only allowed to just utilize it for the benefits of its own, its family and the whole humankind.

You can also judge the differences between these two banking system with an example. For assume, for the purchasing of a car, you borrowed a loan from a conventional bank. As soon as you signed the loan document, the period of returning loan would be fixed and you will be liable to pay the loan installments on regular basis. It is no matter whether the car has been handed over to you or not at that time. You will be extra charged if you not pay the installment on regular basis despite of the fact that the car is still in the process of delivery. In conventional banking system the bank plays a role of bridge between you and the car dealer. It purchases the car on your behalf from the dealer. Compare these to Islamic banking; where bank directly purchases the car from the dealer by its own behalf, thus you will not be liable to pay any penny on the name of any installment or late payment till the delivery of the car. It

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