Abstract:
Islamic banking has been defined as a system of banking that consists of activities which
are accordance with the Islamic law and avoid all that activities or transactions which are
prohibited in Islam. The concept of interest free financing was practiced by Arabs prior to
the advent of Islam, and was later adopted by Muslims as an acceptable form of trade
financing. While the system had been used on a small scale for centuries, its commercial
application began in 1970. Many countries in the world are now experiencing dual
banking system, where the banks are involved in alternative form of banking along with
conventional banking. The basic structure of an Islamic Financial Institution is based on
the element of Shariah, Islamic Banking is based on two main pillars; one is economic
Philosophy of Shariah and second is monetary theory of Islamic economics. Despite a
substantial growth of Islamic banking, everything is not right, there are some challenges
and risk which are prevailing about different concepts of Islamic banking and which need
to be addressed. This paper basically examines and explores the different arguments
which are in the minds of people which need to be addressed. In this research report I am
also tried to suggest suitable solutions to overcome these challenges and risk.
