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
Date Written: June 1, 2011
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: Suggested Citation