ISLAMIC BANKING

Before explaining the concept “what is Islamic Banking” the elaboration of concept “why Islamic Banking” is very important.
Islam is a complete code of life that provides guidance regarding each aspect of life.
The primary objectives of Islamic Economic System are as under.
4 Equal Distribution of wealth
4Social justice
These objectives can never be achieved in Interest/Riba based economic systems.

WHAT IS ISLAMIC BANKING


Now we come to our core question 
“Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Shariah”

DIFFERENCE BETWEEN ISLAMIC AND CONVENTIOANL BANKING

Islamic Banking
Functions and operations are based       on Sharia’h principles.
Promote risk-sharing between provider of capital (investor) and user of funds (entrepreneurs).
Aim at maximising profit but subject to Sharia'h restrictions.
Partners, investor and traders, buyer or seller relationship.
Encourage asset-based financing and based on commodity trading.


Conventional Banking
Functions and operations are based on fully man made principles.
Investor is assured of pre-determined rate of interest.
Aim at maximising profit without any restrictions.
Creditor-Debtor relationship.
Based on money trading. Money is a medium of exchange and not a commodity, its sale and purchase is prohibited in Islam.

Currently available Islamic Banking Products and services are
• Partnership based modes of financing - Musharaka Finance, Mudaraba Finance,
• Trade based modes of financing - Murabaha Finance, Salam finance
• Rental based modes of financing - Ijarah Finance, Diminishing Musharaka Finance