Islamic Banking

What is Islamic Banking

Islamic Banking has been defined in a number of ways.
The definition of Islamic Banking ,as approached by the General Secretariat of the
OIC is stated in the following manner:
An Islamic Bank is a financial institution whose status, rules and procedures
expressly state its commitment to the principle of Islamic Shariah and to the banning
of the receipt and payment of interest on any of its operation(Ali and Sarker pp-20-25)

Shawki Ismail Shehta viewing the concept from the respective of an Islamic
economy and the prospective role to be played by an Islamic Bank therein opines:
It is therefore, natural and indeed, imperative for an Islamic bank to
incorporate in its functions and practices commercial investment and social
activities as an institution designed to promote the civilized mission of an Islamic economy.(Ibid)

Ziauddin Ahmed says, “” Islamic Banking is essentially a normative concept
and could be defined as conduct of Banking in consonance with the ethos of the value
system of Islam.

Feature of Islamic Banking:

An Islamic Bank has several distinctive features as compared
to its conventional conventional counterparts.Chapra-P-154,155)

has outlined six essential differences as below.
Abolition of Interest
Adherence to public Interest
Multi-purpose Bank
More Careful evaluation of investment demand
Work as catalyst of Development
Islamic Banking for Equitable Distribution of Resource

Goals and Objectives of Islamic Banking: 

 The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specially, the objective of Islamic Banking when viewed in the context of its role economy are listed as following: To offer contemporary financial services in conformity with Islamic Shariah; To contribute towards economic development and prosperity within the principles of Islamic justice; Optimum allocation of scarce financial resources; and To help ensure equitable distribution of Income.

Islamic Banking	Conventional Banking
It is based on Islamic Shariah which has forbidden Receipt and payment of interest in any of its operation along with total commitment to comply Shariah guidelines in its entire operation.	Conventional Banking is based on interest which is forbidden in all the revealed religion.
The very objective of Islamic shariah is to ensure welfare not only to humanity but also for all the living beings, as such, it is welfare oriented banking.	Conventional Banking has got no such objectives other than profit orientation irrespective of the financing may be detrimental to social or human interest.
Under Islamic sources of Fund is collected based on either do not guarantee any return or profit sharing basis i.e. loss if any due to genuine business reason has to be borne by the depositors(shab Al Maal) which protects the Islamic Bank from failure through shock absorbing capacity.	Conventional Banking system commits guaranteed return which causes frequent bank failures in cases the bank fails to earn higher return from loans and advances than guaranteed to the depositors.
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