Index IntroductionIslamic BankingIslamic Banking ModelMudarabahMusharakahCommercial Banks in Muslim CountriesIslamic Banks in the 20th CenturyIntroductionIslamic banking is banking based on Islam or Shariah. Follows Islamic rules on transactions. Islamic banking is based on Islamic law, also called Shariah law, and is driven by Islamic economies. Islamic banking is based on two key factors: religion and profit. The organization must internalize the teachings of Islam. It will involve moral elements by virtue of the Imaan (Faith and Belief) factor. in business operations. If only the moral factor is given importance, there is a possibility that the bank will suffer losses and be forced to cease operations, so Islamic banks also give dimension to the business and also importance. Shariah prohibits Riba. Investments in businesses that provide goods or services that are contrary to Islamic principles are Haram. This ban is enforced in many Muslim countries to prevent un-Islamic banking. By applying these Islamic principles we can avoid the wrath of Allah. The bank should strictly follow Shariah and improve the living standards of those who seek to do so in an Islamic way. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The concept of Islamic free banking is becoming very popular even in non-Islamic countries. The interest-free bank works under the rule that the creditor must have a share of the profits or losses. The lender and the borrower are like partners and this plays an important role in characterizing the social order. Islamic banking was introduced in July 1979 in the banking and financial system of Pakistan. The government of Pakistan has decided that only the Islamic system can guarantee a better standard of living. To facilitate the introduction of interest free banking system, some necessary rules in banking laws were established in Pakistan in June 1980. Several companies start business on the basis of interest free system. Islamic Banks At the end of the 20th century, numerous Islamic banks were formed to apply Islamic principles. Their number and size have grown so much that in 2009 there were over 300 banks and 250 mutual funds worldwide based on Islamic laws, and in 2014 there were approximately trillions of dollars. Islamic law is derived from the following four sources. The Holy Quran The Sunnah of the Holy Prophet (PBUH) IjmaQiyas The Holy Quran The Quran is one of the primary sources of Islamic law. It includes many commandments, rules and principles for the behavior and relationships of individuals in society. Most of its principles are general in nature, although some of them are well defined. The words of the Quran are definitive and no one can change the text. The Sunnah Equally important is the Sunnah, a secondary source of Islamic law. The Sunnah is the path or way of the Prophet Muhammad (PBUH). The Sunnah consists of the sayings, deeds and words, actions or even silence of the Prophet Muhammad (PBUH). ''Take whatever the messenger gives you and abstain from whatever he forbids you' (Al-Hashr) To understand the teaching of the Quran, the understanding of the Quran, the understanding of the Sunnah is obligatory. Ijma Ijma means the agreement of the mujtihad of Ummah on a matter requiring the exercise of ijtihad For example: The institution of khilafat is established on the basis of ijma among Islamic jurists Qiyas Qiyas is the process in which Mujtihad extends sharia where no such exists. guidance from sharia (similarity). of cases) Deep intuition is needed Adexample: From wine, jurists have concluded and generalized that all things that cause unconsciousness are prohibited by Islam Holy Prophet (PBUH): "Every loan that brings benefit (to the lender) is Riba" Also in Quran (surah-Al- Bakarah) "or those who believe; fear Allah and renounce what still remains riba if you are believers. But if you do not do so, you will be advisedThat of Allah and His Messenger. If you repent even now, you are entitled to the return of your capital ; you will neither do anything wrong nor be wronged by the musharakah in three main ways. The investment in musharakah comes from all the partners while in mudarabah, the investment is the sole responsibility of rabb-ul-maal the partners can participate in the management of the company and can work for it, whereas in the mudarabah the rabb-ul-maal has no right to participate in the management carried out by the mudaribonly all the partners share the loss to the extent of the relationship of their investment while in mudarabah the loss, if only suffered only by the rabb-ul-maal, because the mudarib does not invest anythingMusharakahMusharakah is the type of Shirkat-ul-Amwal which literally means sharing. In the business context, it refers to a sharing of profits and losses of a joint venture. Musharakah has far-reaching implications for Islamic banking and finance in the modern context and provides an excellent alternative to interest-based economics. In a musharakah, the party investing the capital shares equally in both profit and loss, which is different from an interest-based system where the upside is limited while the downside is almost non-existent. These are two references which clearly show that profit leading to Riba is haram and against shariah. Islamic banking transactions are Riba-free transactions. It guarantees mutual benefit by hedging and distributing the risks of both counterparties. Islamic banks do not provide any assistance and strictly discourage the production of goods and services that are contrary to Islamic values. Islamic banks should ideally have their own reference system for determining profit. Since the industries in its early stage of development; is using the benchmark available for the banking sector. It is expected that once it reaches a considerable level, it will have its own reference point. However, using the interest rate benchmark to determine the profit of any permitted transactions does not render the transactions invalid or harmful. It is the nature or mechanism of transactions that determines their validity. Islamic banking serves the same purpose as conventional banking, as long as it operates in accordance with sharia rules known as Fiqh-al-Muamalat. Islamic banking activities must be practiced in accordance with sharia and its practical application through the development of Islamic economics. Many of the principles on which Islamic banking is based are commonly accepted across the world, across countries rather than across decades. These principles are not new but their original state has probably been altered in countries. The main source of shariah is the Quran followed by the recorded sayings and deeds of the Prophet Muhammad (PBUH), the hadith. Where solutions to problems cannot be found in the two sources, decisions are made based on the consensus of community-oriented scholars, the independent reasoning of an Islamic scholar and custom, provided that such decisions do not deviate from the fundamental teachings of the Quran . It is evident that Islamic finance was practiced predominantly in the Muslim Wend throughout the Middle Ages, promoting trade and commercial activities. In Spain and the 1976..