Islamic Banking: Concept and Methodology

Khaki, A. R., & Sangmi, M. U. D. (2013). Islamic Banking: Concept and Methodolgy, Interest – Free Banking, Ed. (Nazir A Nazir, Khursheed A Butt), Chapter – 15, Edition 1, September, 2013, pp. 231-252; ISBN: 978-81-908642-82.

19 Pages Posted: 4 Dec 2012 Last revised: 11 Dec 2017

See all articles by Audil Khaki

Audil Khaki

American University of the Middle East; American University of the Middle East

Mohi-ud-Din Sangmi

University of Kashmir - Department of Business & Financial Studies

Date Written: June 1, 2011

Abstract

A Bank is the establishment for the custody of money received from, or on behalf of, its customers. Interest being the cogwheel of the modern banking, is strictly prohibited in Islam and hence there can be no banking system in Islam based on Interest. Interest though seemingly a lucrative proposition for commercial banks, many scholars believe that Interest is the main reason for Bank Failures and Systemic Crisis. The bank failures in the U.S. during the 1980s revived interest in equity-based proposals and the separation of the payment of deposits from the portfolio activities of banks. The proposals made were strikingly similar to the Islamic systems now being implemented, at least on the deposit side. But the Islamic system goes further, requiring that loans made by banks should also be equity-based. Islamic Banking has the same purpose as conventional banking except that it operates in accordance with the governing rules of Shari’ah. This paper is framed with an intention to outline in brief the conceptual framework of Islamic Banking. This paper also throws light on the Islamic laws and governing principles regarding various instruments and operations of Islamic Banking.

Keywords: Islamic Modes of Finance, Islamic Finance, Islamic Banking, Interest-Free Banking

JEL Classification: E42

Suggested Citation

Khaki, Audil Rashid and Sangmi, Mohi-ud-Din, Islamic Banking: Concept and Methodology (June 1, 2011). Khaki, A. R., & Sangmi, M. U. D. (2013). Islamic Banking: Concept and Methodolgy, Interest – Free Banking, Ed. (Nazir A Nazir, Khursheed A Butt), Chapter – 15, Edition 1, September, 2013, pp. 231-252; ISBN: 978-81-908642-82., Available at SSRN: https://ssrn.com/abstract=2184856 or http://dx.doi.org/10.2139/ssrn.2184856

Audil Rashid Khaki (Contact Author)

American University of the Middle East ( email )

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HOME PAGE: http://aum.edu.kw

American University of the Middle East ( email )

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Kuwait
Kuwait, Ahmadi 15453
Kuwait
+965 2225 1400 (Phone)
+965 2225 1400 (Fax)

HOME PAGE: http://www.aum.edu.kw

Mohi-ud-Din Sangmi

University of Kashmir - Department of Business & Financial Studies ( email )

Srinagar
University of Kashmir
Srinagar, Kashmir 190006
India

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