Islamic Banking and Modes of Islamic Finance

Abstract

Islamic finance was practiced predominantly in the Muslim world throughout the middle Ages, fostering trade and business activities with the development of credit. The Islamic financial system is founded on the absolute prohibition of the payment or receipt of any predetermined, guaranteed rate of return. This closes the door to the concept of interest and precludes the use of debt-based instruments. The system encourages risk-sharing, promotes entrepreneurship, discourages speculative behaviour, and emphasizes the sanctity of contracts.

The study was carried out with a view to providing information regarding the Islamic Banking practices that have been ignored by financial institutions. At the same time, very basic facts regarding Islamic Banking have been elucidated. The purpose was to put forward a viewpoint that is not just theoretical but is very well applicable and can provide better returns to the investors and money lending organizations alike. The emphasis in the end has been on how we can get a better Islamic banking system. As far as Banking Agencies Services is concerned there seems to be no problems. Islamic banks are able to provide nearly all the services that are available in the conventional banks.

My purpose of this topic that why people does not come to the Islamic banking in Muslim countries as they know that Islam prohibited interest. I therefore focus on theory and what is practically implemented by the banks, and how it is purely different from the Islamic Philosophies and how it becomes possible to make a change in our system to avoid Riba. Further more it includes the modes of financing in Islam and to point out which of them are often being used by the banks.