Abstract:
An Islamic bank i s a financial instituti on which i dentifies
itself with the spiri t o f Shariah, as l a i d down by the Holy
Qur'an and Sunnah. Inte res t is prohibi ted as it leads to
injustices and Islam is a gainst all f orms o f i n justices and
exploitati ons and ple ads an e conomi c s y stem, which aims at
securing extensive soci o- econ omic justi ce . The Islami c law
of proh ibi tion of Riba, whi ch includes interest, was
originally not b a sed on economic theory but on Di v i ne
Authority, which consi ders t he charging of inter est as an
act of i njusti ce . I n thi s study the researcher s describe
mainly the r apid g r owth o f Islamic banking in Pakistan and
its di f f erence f r om conventional banking . Only a minority
of Muslims strongly b e lieves in efficacy of Is l ami c banking
system, whereas a majority of Mus lims and non- Musl ims have
doubts about its v i abi l i ty on economic grounds. They are
not convinced to its practicality and viability.
Descrip tion of Islamic banking i n this study will clarify
such doubts about the system . I slamic f inance has been
gaining momentum on a global scale for the last 30 years .
Mmy I slamic Banks have sprung up over the last few years .
These changes are occurri ng both in Muslim and in western
countries, and are dri ven by a global trend amongst Muslims
to become more observant o f t heir fa i th . I t might have been
the reason why Isl ami c Banking emerged, however , today
Islamic Banking i s sough t by Muslims and non- Musl ims due to
the benefi ts it offers. Industry size is currently
estimated at more than $400 billion, with projected growth
annum . Financi al institutions around the globe
trying to keep pace with the growing demand for
I
Sharia'h compliant products and services. Islamic banks
have some definite edge over conventional banks because
their capital is secure. While, the capital of the
conventional banks is at risk, due to high leverage with
their liabilities. Islamic banks deal with money and do not
deal in money. The Islamic banks can minimize idle reserves
by reconsidering its managerial philosophy, improving its
style of applying the rules of banking prudence and seizing
the little opportunities available to use its cash assets
to increase income. Global interest in Islami c finance
industry and Pakistan's success in laying basic foundation
and core infrastructure of Islamic financial system lends
confidence that the country has good potential and
prospects to further exploit this industry.
