Abstract:
Islamic banking or interest free banking as it is alternatively called is
a banking system based on the principles of profit and loss sharing by
all the stake holders. Islamic banking concept owes its origin to the
Islamic concept of money. In Islam money does not in itself produce
interest or profit, and is viewed as a medium of exchange and not as a
commodity. Already Ribah (interest) is prohibited in Islam. The
status of Islamic bank in relations to its clients is that of partner –
investor and trader. Whereas, in conventional banks of the West the
relationship is that of creditor or debtor. Islamic banking will be based on the universally recognized
principles of Shirakah (partnership). That is, the whole system of
banking in which the holders, the depositors, the investors and the
borrowers will participate on a partnership basis i.e through the
application of the external principle of Mudarabah – labour and
capital combine as partner for work.
