INTRODUCTION Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of sharia

law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees (known as riba, or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also haraam ("sinful and prohibited"). Although these principles have been applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community. History of Islamic banking An early market economy and an early form of mercantilism, called "Islamic capitalism", were developed between the eighth and twelfth centuries. The monetary economy of the period was based on the widely circulated currency the gold dinar, and it tied together regions that were previously economically independent. A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, partnership (mufawada, including limited partnerships, or mudaraba), and forms of capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, trusts (see Waqf), transactional accounts, loaning, ledgers and assignments. Organizationalenterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards. Riba The word "Ribi" means interest, usury, excess, increase or addition, which according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money). The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart", or "to ensure equivalency in real value", and that "numerical value was immaterial."
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Applying interest was acceptable under some circumstances. Currencies that were based on guarantees by a government to honor the stated value (i.e. fiat currency) or based on other materials such as paper or base metals were allowed to have interest applied to them.[10] When base metal currencies were first introduced in the Islamic world, the question of "paying a debt in a higher number of units of this fiat money being riba" was not relevant as the jurists only needed to be concerned with the real value of money (determined by weight only) rather than the numerical value. For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight (i.e., the value in terms of weight had to be same because all makes of coins did not carry exactly similar weight). Modern Islamic banking MirzaBasheer-ud-Din Mahmood Ahmad was perhaps the first person to discuss Islamic Economics in detail in his books NizameNau (1942) and Islam kaIqtisadiNizaam (1945). Later work included that of NaeemSiddiqi and MaulanaMaududi. The writings of Muhammad Hamidullah (1944, 1955, 1957 and 1962) should be included in this category. Also the Iqtisaduna (Arabic: "Our Economics") is a major work on Islamic economics by a prominent Shia cleric Muhammad Baqir al-Sadr. Written between 1960 and 1961, it is al-Sadr's main workon economics, and still forms much of the basis for modern Islamic banking. They have all recognised the need for commercial banks and their perceived "necessary evil," have proposed a banking system based on the concept of Mudarabha - profit and loss sharing. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. Works specifically devoted to this subject began to appear in this period. The first such work is that of Muhammad Uzair (1955). Another set of works emerged in the late sixties and early seventies. Abdullah al-Araby (1967), NejatullahSiddiqi (1961, 1969), al-Najjar (1971) and Baqir al-Sadr (1961, 1974) were the main contributors. The early 1970s saw greater institutional involvement. The Conference of the Finance Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, the First International Conference on Islamic Economics in Mecca in 1976, and the International Economic Conference in London in 1977 were the instrumental as
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the involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process. Dr. Sami Hassan Homoud a Jordanian(1976) He made his PHD in Islamic Banking, where he was the first one writes about Morabha, and he Established Jordan Islamic Bank in 1978 The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic imagefor fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime. The pioneering effort, led by Ahmad Elnaggar, took the form of a savings bank based on profitsharing in the Egyptian town of MitGhamr in 1963. This experiment lasted until 1967 (Ready 1981), by which time there were nine such banks in country. From Judaism to Christianity, and Christianity to Islam, scriptures of theworlds major religions have been and continue to preach against exploitation of the masses being in business or otherwise through usurious acts. This refers to charging of excessive interest rates by banks and other financial intermediaries on borrowed money. This paper provides evidences in the literature review chapter to substantiate the above argument. However, Islam, like all the above-mentioned religions have laid down special codes of ethics for doing business in principle and in practice. Numerous studies on the subject confirmed unanimously that the sources of Islamic financial system regulations could be traced back from four main books which formthe core of the Islamic legal system, also known as Shariah: the Holy Quran, the Sunnah, the Ijma, and the Qiyas. The Islamic banking transaction model of Profit-and-Loss Sharing (PLS) was first pioneered undercover in 1963 by an Egyptian Savings Bank known as MitGhamr. However, the first Islamic bank of the world was considered to be Dubai Islamic Bank (DIB) founded in 1975.According to Islamic Shariah law, Muslims are strictly prohibited and condemned from receiving or paying RibaUsury or Interest in their financial dealings because it serves as bottleneck to fair distribution of wealth in society and discourages social justice. Hence, the underlying concept for practicing Islamic banking and finance advocates a free interest-based financial system where profits as well as losses are shared among parties to a contract unlike the conventional interest-based system. It is important to note that banking services are one aspect of Islamic financial system
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which encompasses other spheres of financial intermediation such as those dealing with financial instruments, for example, Islamicbonds called Sukuk , financial markets dealing with Islamic Mutual Funds and soon. Today, Islamic banking is constantly gaining momentum among leading financial service providers in the world. Major global conventional banking entities like HSBC, Deutsche Bank and a host of others have seen the promising trend of Islamic products and are exploiting the opportunities they offer by opening Islamic banking subsidiaries and windows. Notwithstanding, Islamic financial (IFIs) have been criticised for their lack of compliance to Shariah principles with respect to current practices. Hence, key concerns raised by two prominent scholars have been highlighted in the literature review to help balance content and give a fair representation of views expressed on the subject matter. The purpose of this paper is to study prospects and challenges of Islamic banking and finance in U.S. and help identify lessons that IFIs can learn from recent global financial crisis. However, over the past two decades, Islamic banking has been a growing and promising industry in U.S. and focuses primarily on Shariah-compliant consumer retail banking products including home finance mortgages (Goud, 2009). The basic intention behind the setting up of IFIs in U.S. apart from the desire of Muslims to recognise and perform their financial transactions without indulging in Riba; was to serve the unmet needs of the increasing Muslim population. Islamic banking products in U.S. consist of current, savings and mudaraba or investment accounts. The most popular methods of Islamic home finance include mudaraba, musharaka, ijarah and marabaha. Islamic financial intermediation in U.S. is not without challenges mainly because the financial architecture is more attractive to conventional players than their Islamic counterparts. Nonetheless, this paper shares the opinion that the future growth prospects of Islamic finance in U.S. are promising. This research paper is divided into six chapters together with bibliography and appendices sections. Islamic banking appeared on world forum as a prominent player over two decades ago. But actually many principles of Islamic banking system have been generally accepted all over the world for centuries rather than decades .Islamic financial system is existed in Muslim community in different shapes according to situation of time. Actually Islamic financial system has a capability to fulfil the society requirements in respectable way. Islamic banking is a growing sector with its diversity in different
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segments and spectrum. It caters to religious Muslims in Muslims societies as well as in countries where Muslims are in minority. In addition, it is a broad standard: nonMuslim individuals and communities that seek ethical financial solutions have also been attracted to Islamic banking. It is clear from banking practice that Islamic banking is equally popular in all communities. It is clear from above statements that Islamic banking is not only Islamic or specific banking but actually it is a system which provides more ethical and moral concept of financial issues as well as it is really helpful to create a peaceful, economically prosperous and welfare society. The Organization of Islamic Conference (OIC) defined an Islamic banking as a financial institution whose statutes, rules and procedures expressly state its commitment to the Principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations According to this statement it is clear that interest is fully prohibited in Islamic law due to its bad effects on human being and more badly effects on overall society and economy. In an interest based economy a trend arises that rich people create the methods to increase their wealth through effecting the middle and lower classes. In interest based economy the middle class cannot contribute positively in economic system then gradually the economy travel toward financial crises such as credit crunch. An Islamic bank is an intermediary and trustee of other peoples money with the difference that it shares profit and loss with its depositors. In practice the most Islamic banks have an organizational set-up very matched and similar to their conventional counterpart banks (Dar and Presley, 2000). Islamic banking is phenomenally profitable because, although its underlying funding mechanism is the same as conventional banking, its default experience is better, and its charges higher and less transparent. It is resulted from above statements that Islamic banking is not totally different from conventional banking. They are doing same practice such as saving deposits and consumer finances but there are some fundamental differences of its practice and objectives. Islamic banking is interest free and its main objectives are the equal distribution of wealth, decreasing the poverty and increasing the investment opportunities. It is very beneficiary for Muslim population who want to solve all their financial matter according to their religion. Because a number of Islamic and some high street commercial banks from all over the world offer products and services that are according to Shariah compliant Although the western media frequently suggest that Islamic banking in its present form is a
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recent phenomenon, in fact, the basic practices and principles date back to the early part of the seventh century (Islamic Finance: A Euro money Publication, 1997) According to these statements it is resulted that Islamic financial system is not a new practice. Its roots belong to the early days of Islam and in the age of HazratUmer it was available in a disciplined form, all financial matters of state solved through Islamic financial law. Islamic financial system is gradually improved and nowadays it is recommended and exercised by many Muslim countries as well some non-Muslim countries especially UK, USA and Australia. Although Islamic banking is very famous in Muslim and non-Muslim communities and it is a system which has a complete financial and economic solution but still Islamic financial and banking system is not well organized in non-Muslim countries. Islamic banking is facing the challenges of lack of fund management and lack of proper institutional set up to run this infant system. Comparatively the conventional banking system has strong financial and institutional network in all Muslim and non-Muslim countries. Islamic banking is an investment and financing system which expands globally. The Islamic banks have only been established for some 30 years but the banking system is based on long-going traditions within Islamic finance. The system is founded on ethical values and emphasises the well-being of society as a whole. Islamic banking is different from conventional banking in most aspects, since its close tie to religion is very important. The system is not based on interest, as it is prohibited in Islam. Instead Islamic banks offer various kinds of accounts and a range of financing alternatives all complying with the Islamic Law Sharia. To work according to Sharia is crucial for the banks and their activities are controlled by a special Religious Supervisory Board working within the bank. The implementation of the Islamic banking system varies to some extent between Islamic countries. It has been influenced by its connections to politics of and the history in the countries where the system operates. As a result to the variations between the states implementation, the need for harmonisation increases as the expansion of Islamic banks continues. Several organisations work to achieve international standardisation and harmony to make the banking activities more transparent and attractive. The achievement of harmonisation as well as the performance of the banks is crucial for the future of Islamic banking.
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The dissertation is based on extensive literature review and a personal interview with a professional within an Islamic bank in Lebanon. Shariah Advisory Council/Consultant Islamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish a Shariah Supervisory Board (SSB) to advise them and to ensure that the operations and activities of the banking institutions comply with Shariah principles. On the other hand, there are also those who believe that no form of banking that involves interest payments can ever comply with the Shariah. In Malaysia, the National Shariah Advisory Council, which has been set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services. In Indonesia, the Ulama Council serves a similar purpose. A number of Shariah advisory firms have now emerged to offer Shariah advisory services to the institutions offering Islamic financial services. Issue of independence, impartiality and conflicts of interest have also been recently voiced. The World Database for Islamic Banking and Finance (WDIBF) has been developed to provide information about all the websites related to this type of banking. Islamic Financial Accounting Standards The Institute of Chartered Accountants of Pakistan issues Islamic Financial Accounting Standards (IFAS) for Islamic Mode of financing. IFAS 1 (issued in 2005) concerns Musharakah and Mudarabah. While, IFAS 2 (issued in 2007) relates to Ijarah. Fundamentals of Islamic finance The term Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Shariah) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or
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pornography, which are contrary to Islamic values). Furthermore the Shariah prohibits what is called "Maysir" and "Gharar". Maysir is involved in contracts where the ownership of a good depends on the occurrence of a predetermined, uncertain event in the future whereas Gharar describes speculative transactions. Both concepts involve excessive risk and are supposed to foster uncertainty and fraudlent behaviour. Therefore the use of all conventional derivate instruments is impossible in Islamic banking. In the late 20th century, a number of Islamic banks were created to cater to this particular banking market. Usury in Islam The criticism of usury in Islam was well established during the lifetime of the Islamic prophet Muhammad and reinforced by several verses in the Qur'an dating back to around 600 AD. The original word used for usury in this text was Riba, which literally means excess or addition. This was accepted to refer directly to interest on loans so that, according to Islamic economists Choudhury and Malik (1992), by the time of Caliph Umar, the prohibition of interest was a well-established working principle integrated into the Islamic economic system. This interpretation of usury has not been universally accepted or applied in the Islamic world. A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, argues for an interpretative differentiation between usury, or consumptional lending, and interest, or lending for commercial investment (Ahmed, 1958). Nevertheless, Choudhury and Malik provide evidence for a gradual evolution of the institutions of interest-free financial enterprises across the world (1992: 104). They cite, for instance, the current existence of financial institutions in Iran, Pakistan and Saudi Arabia, the Dar-al-Malal-Islami in Geneva and Islamic trust companies in North America. Largest Islamic banks Shariah-compliant assets reached about $400 billion throughout the world in 2009, according to Standard & Poors Ratings Services, and the potential market is $4 trillion. Iran, Saudi Arabia and Malaysia have the biggest sharia-compliant assets. In 2009 Iranian banks accounted for about 40 percent of total assets of the world's top 100 Islamic banks. Bank Melli Iran, with assets of $45.5 billion came first, followed by Saudi Arabia's Al Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran with $39.3 billion. Iran holds the world's largest level of Islamic finance assets
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valued at $235.3bn which is more than double the next country in the ranking with $92bn. Six out of ten top Islamic banks in the world are Iranian. In November 2010, The Banker published its latest authoritative list of the Top 500 Islamic Finance Institutions with Iran topping the list. Seven out of ten top Islamic banks in the world are Iranian according to the list. Expansion into Islamic banking services In May 2012, Trend News Agency reported that the Chairman of the International Bank of Azerbaijan, Jahangir Hajiyev, announced that his bank would expand into Islamic banking services. The expansion will take place in countries around Azerbaijan, such as Russia and Kazakhstan. Dr. Hajiyev told Trend News Agency, "For the first time in Azerbaijan's history, we are planning to establish a new office in the field (Islamic banking), enabling the country to become a regional center for Islamic financing.

The Principles of Islamic banking

The principles of Islamic banking are based on Islamic law, known as Shariah, which mean: (i)Interest (Riba) Interest cannot be paid or received on transactions in any case where money is exchange for money because the money is not actually any value accordance to Islam if it is not employed in business. Prohibition of Riba (Interest) Many Muslim scholars and some western thoughts believe and still considering that just interest free banking is as an Islamic banking. Actually interest is fully prohibited in Islam that is proved in Quran and Sunnah. The interest that you give in order to increase the wealth of the people, does not increase in the sight of Allah; and the Zaka that you pay in order to win Allahs approval, its payers do indeed increase their wealth. It is beautiful and powerful statement from Quran which shows that interest is prohibited by God because it can only increase the wealth of individual not the society. exclusion of interest from financial activities does not necessarily mean that the financier cannot earn a profit. If financing is meant for a commercial purpose, it can be based on concept of profit and loss sharing, for which Musharakah and Mudarabah have been designed since the very inception of Islamic commercial law. It is wrong and confused concept in the society about the operation of the Islamic banking system but Islam provides an alternative system where everyone contributes their share of investment and earns profit. In case of losses all the parties of contract suffer according to their agreed terms and conditions. Islamic financial system is being only successful if all the financial activity will be performed according to Islamic financial law. Allah deprives interest of all blessing and develops charity; and Allah does not like an ungrateful, sinful person. Zarqa (1983), Khan (1986), Chapra (2000), El-Gamal (2000) and Gafoor (1997), have illustrated the macro-economic stability that can form a profit and loss sharing system; an Islamic form of banking would replace interestbased transactions that characterise western transactions It is concluded from above statements that in Islam there is no room of interest. Interest is totally prohibited in
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Islam. In interest-based economy the depositors want to get more interest and want to increase their wealth through interest. They are not taken part in investment activity it leads to collapse and credit crunch. On other hand the banks charge high rate of interest on loan, it creates the difficulties for poor people of the society and leads to maximise the wealth of industrialists and giants. (ii)Gharar and Maysir Transactions must avoid uncertainty (Gharar), speculation (Maysir) or anything that could lead to the unjust enrichment or unfair exploitation of one of the parties to a contract (Imeson,2007). In case of speculation the big investors and industrialists turn the economic financial system toward their own and personal benefits. (iii)Unethical businesses Transaction cannot be made that involve prohibited products or activities, such as alcohol,illicit drugs and tobacco because Islam wants to develop a ethical and friendly environment in the society. The Fundamental of Islamic Banking and Finance Islamic commercial law is actually based on four basic principles. The fundamental of first Islamic business principle is profit and loss sharing and the second is based on fixed service fees and charges and third is based on free of cost and no charges. The other principles are changing with the situation of the business and its operation. 1. Musharakah (Partnership Finance) Musharakah is a contract in which the bank and the industrialist contribute jointly to the capital of a company or project to make a profit. Profit and losses are shared between the parties on agreed term and condition of the contract. 2. Mudarabah (Trust Financing) Mudarabah is a contract in this contract it is the responsibility of bank provides all the capital while the partner contributes commercial efforts, professional skills and experiences. Finally, the bank receives a predetermined proportion of the profits. In the case of a loss, the bank bears all the financial loss whilst the manufacturer goes

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unrewarded (Rob, 1992). It is concluded that this system encourage the individual to participate in financial activity and prove himself as an active part of society. 3. The third principles and the free charges among the principles within the fixed charges categories are: i. Murabaha (Cost-plus financing) The Murabaha is a contract in which the bank informs the industrialist about the acquisition cost of a good and negotiates with him the profit margin. It is one of the most popular modes used in Islamic banking system in different countries to promote interest-free transactions. ii. Bai-muajjal ( deferred payment sale) The Bai-muajjal is a deferred payment sale contract which is traded without additional costs. iii. Ijara (Leasing) The Ijara is a rent contract by which the owner of the good rents it to another party beeding it. After that the latter can purchase it and rent is reduced until the good become the possession of the client Nowadays the Home Finance and Islamic mortgage are based on the concept of Ijara and it is very successful tool in Islamic financial system. iv. Quard Hassan In Islamic financial system the customers who are facing financial crises or unpredicted expenditure banks provide welfare loan without paying any fees or interest. According to Rob (1992) Islamic banks can raise the funds through sale of shares to public and further through three main deposit accounts such as investment deposits, saving deposits and current deposits.

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Compatibility of Islamic banking with Conventional banking Islamic banking has same purposes and practice as conventional banking except that Islamic banks operate in accordance with Shariah laws. The basic principles of Islamic banking are the sharing of profit and loss between contracted parties and as well very strongly prohibit the Riba (interest). Islamic and traditional banking actually are not different. The both banking system has same objectives and practice the only difference of implementation of interest because interest is totally prohibited in Islam. Islamic banking falls into the realms of conventional banking; Islamic banking try to ensure that all their financial matters according to Islamic financial law as well as the rules and regulations of a particular state like the Financial Services Authority (FSA) in the United Kingdom (Shanmugam, Perumal and Ridzwa, 2004). Islamic banking almost provides same services as conventional banking such as current accounts, saving accounts, insurances, mortgages and investment opportunities in the society. According to Nienhaus (1995) Islamic banks, in compliance with the welfare principle of Islam, offer facilities more or less the same segment of the economy as the conventional banks. The practices and situations are not so different from conventional banking such as the costs of funds are closely related to interest rates and guarantees are nearly as important in Islamic banks as they are in the conventional banks (Hassan, 1999). It is resulted from these statements the functions of Islamic banking are matched with traditional banking system such as conventional banking charge interest against Islamic banking provides these services with charging of services fees and mortgages rate are most likely same in both banking system but only difference that Islamic banking follow the Ijarah rules in which the instalment is calculated on the basis of monthly rent plus services fees of the banking institution.

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Difference between Conventional and Islamic banking

Conventional Banking Money is a commodity besides medium of exchange and store of value. Therefore, it can be sold at a price higher than its face value and it can also be rented out.

Islamic Banking Money is not a commodity though it is used as a medium of exchange and store of value. Therefore, it cannot be sold at a price higher than its face value or rented out. Profit on trade of goods or charging on providing service is the basis for earning profit. Islamic bank operates on the basis of

Time value is the basis for charging interest on capital.

Interest is charged even in case the organization suffers losses by using bank funds. Therefore, it is not based on profit and loss sharing.

profit and loss sharing. In case, the businessman has suffered losses, the bank will share these losses based on the mode of finance used (Mudarabah, Musharakah).

While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

The execution of agreements for the exchange of goods & services is a must, while disbursing funds under Murabaha, Salam & Istisna contracts. Islamic banking tends to create link with the real sectors of the economic

Conventional banks use money as a commodity which leads to inflation.

system by using trade related activities. Since, the money is linked with the real assets therefore it contributes directly in the economic development.

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What is difference between conventional mortgage financing and Islamic Mortgage financing? Under conventional mortgage, in order to purchase a property the customer borrows money and repays it with an additional amount over a period of time. The additional amount is the amount of interest which is against the Shariah rulings of Islam. Under Islamic mortgage finance facility, Islamic bank shares with the customer in purchasing his desired property. Accordingly, the customer and the bank become the joint owners of the property in proportion to their share in purchasing the property. In order to own and use the entire property, the customer purchases the share of bank property over a period of time and also pays the rent for using the ban share of the property. Over a period of time, the customer manages to purchase the entire share of bank in the property. Ultimately, the customer becomes the sole owner. Further, in case of Islamic mortgage finance, the rent will be charged after the lessee has taken delivery of the property and it is in workable/usable condition. Rent cannot be charged from the day the price was paid to acquire the property/asset. If the supplier has delayed the delivery after receiving the full price, the lessee should not be liable for the rent of the period of delay. In case of conventional mortgage finance, normally the lease rentals starts from the date the bank make payment for purchasing the property/asset. There are at least six basic principles that differentiate a financial transaction from a Riba/interest based transaction to an Islamic banking transaction. Sanctity of contract: Before executing any Islamic banking transaction, the counter parties have to satisfy whether the transaction is halal (valid) in the eyes of Islamic Shariah. This means that Islamic bank transaction must not be invalid or voidable. If there are any invalid components in the contract and unless these invalid components are eliminated, the contract will remain voidable. Risk sharing: Any Islamic banking transaction, the Islamic financial institution and/or its deposit holder take(s) the risk of ownership of the tangible asset, real services or capital before earning any profit there from

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No Riba/interest: Islamic banks cannot involve in riba/interest related transactions. They cannot lend money to earn additional amount on it. However, as stated above, it earns profit by taking risk of tangible assets, real services or capital and passes on this profit/loss to its deposit holders who also take the risk of their capital.

Economic purpose/activity: Every Islamic banking transaction has certain economic purpose/activity. Further, Islamic banking transactions are backed by tangible asset or real service. Fairness: Islamic banking inculcates fairness through its operations. Transactions based on dubious terms and conditions cannot become part of Islamic banking. All the terms and conditions embedded in the transactions are properly disclosed in the contract/agreement.

No invalid subject matter: While executing an Islamic banking transaction, it is ensured that no invalid subject matter or activity is financed by the Islamic financial transaction. Some subject matter or activities may be allowed by the law of the land but if the same are not allowed by Shariah, these cannot be financed by an Islamic bank. Development Although it draws its fundamental values from practices and core principles that go back centuries to the dawn of Islam, contemporary Islamic Banking started in the early 1960s concurrently in Egypt and Malaysia. In 1962, the Hajj Fund, TABUNG HAJI, was established in Malaysia to accept saving deposits from persons who intend to go for Hajj (pilgrimage) in Makkah and invest the proceeds in accordance with the Islamic law. The Fund grew to provide full scale banking services and to become one of the largest banks in Malaysia. Around the same time a series of small saving/investment banks were established in Egypt's countryside, beginning in 1963 in the village of MitGhamr. These small banks also practiced the same principle of interest-free banking. The theoretical developments of this revolution in the Banking system continued until 1974, when the first Islamic commercial Islamic bank was established in Dubai, putting theory to practice. The same year also witnessed signing the agreement to
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establish the Islamic Development Bank (IDB) as an inter-governmental pan-Islamic bank. The IDB main objective is to finance development projects in the Muslim countries in accordance with the rules and ethics of Islamic finance. As part of this effort, IDB, through its investment arm "Islamic Corporation for the Development of the Private Sector" (ICD), together with the Government of Maldives established Maldives Islamic Bank in 2010 as way to introduce and develop Islamic Finance in the Maldives. A short time following the establishment of IDB, Faisal Islamic Bank was opened in Egypt and Sudan (1977), followed by Bahrain Islamic Bank, and Jordan Islamic Bank (1978). By mid 1980s, this new alternative style of banking, based on Islamic principles became an established part of mainstream banking in the Middle East and South Asia. They continued to sprout across South and East Asia in addition to Turkey and the Arab countries. Subsequently, ethical banks and financial institutions, based on Islamic principles, spread in countries where Muslims are minorities, such as UK, Luxemburg, Denmark, Australia, India and the United States. Many Muslims flocked to these new banking institutions, not only for ethical and religious reasons, but also because they provided professional and friendly services to their customers. Today Islamic banks have more than 300 institutions spread over 51 countries, as well as an additional 250 mutual funds that comply with Islamic principles. Islamic banking is now one of the fastest growing sectors of the financial market place, largely driven by the new wealth of the Middle East and by need for Muslims, representing one-fifth of the worlds population, to find islamically acceptable financial products. Islamic financial institutions currently operate in more than 75 countries with assets exceeding US $ 400 billion. This represents a 45 fold growth rate since 1982. However Islami finance, based as it is on the fact that financial activities have to be interest free, poses many challenges for anyone seeking to unravel its workings.

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NEED FOR THE STUDY As the financial market is growing at a fast pace & this system is common in Muslims, so a need arises to know if any Islamic Bank or Islamic banking system opens in Amritsar so what will be the perception & decision for acceptance of the existing employees as well as their existing customers for this, whether they will like to shift to these banks.

OBJECTIVES 1) To find the awareness level of bankers & common people for Islamic banking concepts. 2) To study the perception of individuals (both bankers & consumers) for the acceptance of Islamic Banks in Amritsar city.

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REVIEW OF LITERATURE
Ray (2011), in his book, Arab Islamic Banking and the Renewal of Islamic Law (Graham & Trotman, London, U.K) stated that the purpose of his undertaking in saying that the existing works on Islamic banking tend to either focus on the Islamic law of contract and transactions, muamalat, or on modern Islamic economics, neither of which provide a synthesised analysis of the fiqh principles with the applied aspects of Islamic banking. This book seeks to combine those influences, and he has, much to his credit, gone a long way to deliver what he planned to do. Ray also makes a valid point that the existing literature does not present a detailed financial analysis of an Islamic bank in comparison with other competing banks in the convential banking sector, and this is what he intended to provide. The existing literature on Islamic banking is admittedly preoccupied with the juridical and doctrinal aspects of Islamic banking and not so much with the institutional functioning and applied aspects of these banks. But even so, there is a conspicuous absence in Rays work of any reference in the text or in bibliography to some of the well-known works on Islamic banking such as Baqir al-Sadis Al Bankk al-La-Ribawi, Nejatullah Siddiqis Banking without Interest, and Sami Harnoud, Tatwir al A'mal al.

OBAIDULLAH (2009), in this journal, Financial Options in Islamic Contracts: Potential Tools for Risk Management stated that the paper attempts to undertake an Islamic assessment of financial contracting in the global currency markets. Some basic currency-related contracts in mainstream finance, such as, spot transactions, options, forwards, futures, swap sare examined in the light of Islamic norms of financial ethics, such as, freedom from riba, gharar, jahl, qimarand maisir. The study also highlights the views of Islamic scholars on various conventional as well as Shariah-based contractual mechanisms. In cases where there is some degree of divergence of views, the study examines the nature and source of disagreement as also the implications and economic significance of the arguments. In view of the overwhelming importance of currency risk management in volatile markets, the study undertakes an assessment of the various financial contracts as risk management tools.

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Shaikh(2008), in his journal , A Brief Review & Introduction to Practiced Islamic Banking & Finance, stated that this paper looks at the practiced Islamic finance and alternatives it offers for corporate finance managers in sourcing funds i.e. i) Ijara ii) Murabaha iii) equity modes like Musharakah and Mudarabah iv) Diminishing Musharakah, v) Salam and vi) Istisna. It also looks at alternatives for sourcing funds from savers to provide financing thereof by financial intermediaries i.e. i)Qard-eHasan ii) Musharakah and iii) Mudarabah. The paper also gives a brief account of literature on Islamic corporate finance, interest free finance, alternatives suggested in the past and their pros and cons, role of central bank in Islamic finance and alternatives for OMO, Interbank lending and money market in Islamic finance.

Dar and Presley (2005), in his journal, ISLAMIC FINANCE: A WESTERN PERSPECTIVE, stated that , the new Islamic economics paradigm has developed almost in isolation of contemporary Western economic literature. Islamic economics and finance has so far failed to capture the interest of Western writers. Unfortunately also Islamic writers have focused upon the Koran and mainly Asian literature without utilizing a wide body of literature in the West which would assist with the development of the Islamic paradigm. This article begins to rectify the latter deficiency by exploring three key issues -support for the prohibition of interest in Western literature, the blame attached to interest based systems in the creation of business cycles in capitalist economies and empirical evidence on attitudes towards Islamic finance. In seeking to achieve an economic system based upon fairness and justice, Islam dictates that prohibition of riba (interest) must be established. All incomes, from whatever source, whether it be provision of land, labour, capital or enterprise, must be determined by the supply of work effort associated with the factors of production. If money is lent for interest then capital is augmented without effort; money is unable to create surplus value by itself. In the context of money, work effort is defined to include the taking of risk in whatever project that money is invested; hence Islam decrees that it is fairer if the provider, of capital shares in the profit or loss of the project in which the borrower invests the capital rather than receiving a fixed return which is independent of the use to which that capital is put.

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Alam (2004), in his article, ISLAMIC BANKING IN BANGLADESH: A CASE STUDY OF IBBL stated that: - The article undertakes a case study on an Interest-Free Financial Institution in Bangladesh known as Islami Bank Bangladesh Limited (IBBL). The aim of the study was to see how Islamic banking activities differ from a conventional bank and also tosee how Islamic banks may contribute to render financial services towards small and rural sector. By discussing various aspects of the IBBL, it is shown in detail how interest-free bank functions besides many established conventional banks in the country. Although conventional banks are rendering financial services in Bangladesh for a long period still, the innovation of interest-free banking systems, proved its worth in the countrys money market, since IBBL started rendering banking services without any interest in the nations financial market in recent years. The article mainly consists of two sections. In the first section, an introduction of Islamic banking systems and various financing modes or techniques used by Islamic banks, are discussed. The second section includes a short history of the Islami Bank Bangladesh Limited (IBBL) along with an empirical based detailed account of its financial activities in the country since the introduction of this financial institution in the financial system of Bangladesh.

Kaleem (2001), in his journal, MODELING MONETARY STABILITY UNDER DUAL BANKING SYSTEM: THE CASE OF MALAYSIA stated that, The ultimate aim of any successful monetary policy is concentrated towards the achievement of sustaining real economic growth, reducing inflation and lowering unemployment. Under Islamic monetary system, such targets can only be achieved through those monetary instruments, which are consistent with Islamic teachings. This paper is an attempt to develop and to evaluate the demand for Islamic monetary instruments in case of dual banking system. It also demonstrates the validity and effectiveness of these instruments for monetary policy purposes. Finally it rejects the application of existing Basle agreement framework in favor of separate liquidity and reserves ratios for Islamic monetary instruments.

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Bacha (2001), in his article, DERIVATIVE INSTRUMENTS AND ISLAMIC FINANCE: SOME THOUGHTS FOR A RECONSIDERATION, stated that, This paper examines contemporary derivative instruments and the Islamic viewpoint of the new instruments. The validity and permissibility of these instruments appears to vary by scholar: Even where Islamic scholars have found them to be objectionable their reasons for objection differs. Much of the work by Islamic scholars has been of a highly juridical nature. They examine derivatives within narrow confines of contractual arrangements and thereby miss the broader picture of why instruments like futures and options are needed in modern business environments. This paper analyzes forwards, futures and options, examines the evolution of these instruments, their unique benefits and makes a case for why they are needed. Islamic Finance Instruments with derivative like features such as the Bai Salam and Istijrar contracts are also examined. Some of the key concerns that Islamic scholars have regarding derivatives are addressed.

Research carried on the topic, PRINCIPLES OF ISLAMIC BANKING AND WHETHER IT CAN BE APPLICABLE IN INDIA (2000), stated that, Islamic Banking is infeasible under the current RBI regulations. Indian Banking system is based on Certainty of Capital and Returns; both of which are in conflict with Shariah principals. However it has to be remembered that a few Islamic products could be made permissible through the NBFC route. RBI can learn from the experiences in countries like Pakistan and Iran, where the entire banking system is based on Islamic Principals and from countries like Malaysia, Jordan, Bangladesh and Egypt where Islamic Banks operate along with conventional commercial banks under a mixed banking regime. The changes required in the existing systems would require the involvement of all the stakeholders: the RBI, the Islamic Banks and the Tax Authorities. RBI has to allow riba free deposits; lending on PLS basis; The Islamic Banks have to provide guarantee on deposits; tax laws have to be appropriately modified to accommodate Islamic Banking. If however India decides to implement the Islamic Banking regime, according to the researcher it should follow a two phased approach in introducing Islamic Banking. Phase 1 would be introducing Islamic Financing through NBFCs. At the same time, banks can pilot the concept of interest

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free deposits. The relevant bank and tax laws can be modified during this phase. Phase II would be introduction of full-fledged Islamic Banking. ihk and HeikoHesse, in his paper, Islamic Banks and Financial Stability: An Empirical Analysis stated that, The relative financial strength of Islamic banks is assessed empirically based on evidence covering individual Islamic and commercial banks in 18 banking systems with a substantial presence of Islamic banking. We find that (i) small Islamic banks tend to be financially stronger than small commercial banks; (ii) large commercial banks tend to be financially stronger than large Islamic banks; and (iii) small Islamic banks tend to be financially stronger than large Islamic banks, which may reflect challenges of credit risk management in large Islamic banks. We also find that the market share of Islamic banks does not have a significant impact on the financial strength of other banks.

Case Study on Islamic Banking in India A study on future potential conducted by CRISIL, stated that, there are lot of potential of Islamic banking In Indian markets which can proved as an alternative for conventional banking scenario. It also stated that this can attract huge investments. In this whole research is carried out and also highlighted its opportunities, strength, weakness & threats.

Siddiqi, in his book, Issues in Islamic Banking, stated that, The book contains six papers both published and unpublished and begins with a survey article on money, banking and monetary policy in which the author has claimed that he examined critically issues such as demand for money, credit creation, 100%reserves, discounting, indexation and so on. Then the author provides an "exposition" of the mudaraba and answers the question why Islamic economists advocate a changefrom interest to profit-sharing which will contribute to allocate efficiency, justice and stability. On the economics of profit-sharing, the author argues that forces of demand and supply should determine the ratio of profit-sharing between users and suppliers of capital.

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RESEARCH METHODOLOGY The research methodology explains the methods followed in carrying out research, methods of collecting information, research instruments used as well as the limitations of the present study. It is a way of systematically solving in research problem. A successful completion of any project and getting genuine results from that depends upon the method used by the researcher. The methodology for this study is laid upon the following basis: 1. Research design 2. Sources of data collection 3. Sampling plan SCOPE OF STUDY The study is confined to the bank employees and consumers availing banking facilities of the Amritsar city of different age groups.

RESEARCH DESIGN A research design encompasses the methodology and procedures employed to conduct scientific research. The design of a study defines the study type (descriptive, co relational, semi-experimental, experimental, review, meta-analytic) and sub-type (e.g., descriptive-longitudinal case study), research question, hypotheses, independent and dependent variables, experimental design, and, if applicable, data collection methods and a statistical analysis plan. Research design is the strategy, the plan, and the structure of conducting a research project. Type of Research: The type of research or research design used for this research study is descriptive.

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RESEARCH INSTRUMENT A research instrument is what you use to collect the information in a qualitative field study or observation. It is a way of gathering data. The Research Instrument used for study is structured questionnaire (close ended). CONTACT METHOD Contact method is face to face interaction with people or personal interview. SAMPLING PLAN A sampling plan is a detailed outline of which measurements will be taken at what times, on which material, in what manner, and by whom. Sampling plans should be designed in such a way that the resulting data will contain a representative sample of the parameters of interest and allow for all questions, as stated in the goals, to be answered. Universe All bank employees & people in India availing banking facilities. For my research the universe is all bank employees & people in Amritsar availing banking facilities of different age group starting from under 25years. Population Any set of people or events from which the sample is selected and to which the study results will generalize. Population is the largest group to be studied. Its the total collection of elements about which we wish to make inferences; The population for this research are the residents of Amritsar city who are of age group from under 25 years to 46years & above. SAMPLE SIZE The sample size of a survey refers to the number of units that were chosen from which data were gathered. This refers to number of respondents to be selected from the universe to constitute a sample. The sample size of 100 served the purpose of my study (50 bankers 50 consumers).
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SAMPLING UNIT The sampling unit is a single element or group of elements subject to selection in a sample.Each individual who is working in banks and all consumers availing any kind of banking facilities. SAMPLING TECHNIQUE The methods used in drawing samples from a population usually in such a manner that the sample will facilitate determination of some hypothesis concerning the population. The sampling technique followed in this research is convenience sampling as well as snowball sampling technique. Convenience sampling is done purely on the basis of convenience or accessibility. This sampling method had been mainly chosen because of less time, financial constraints and lack of expertise. Snowball sampling technique had been chosen to get the references of banks customers both Hindu & Muslim.

DATA COLLECTION METHOD Sources of data collection are-: 1. Primary Data- Primary data is collected by extensive use of a structured questionnaire (close ended). They were conducted in Amritsar city and the data collected is used for the purpose of analysis and interpretation. 2. Secondary Data- Secondary data is obtained from Books, Magazines, previous researches, Journals, Articles & Websites.

DATA Analysis Data will be analysed with the help of frequency distribution and other suitable statistical tools. Appropriate statistical analysis will be adopted. Classification and tabulation transforms the raw data collected through questionnaires into useful information.

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Following applications of statistics are used to organize and analyze the data: 1. Simple tabulation of data using MS-Excel. 2. Calculating the number of responses. 3. Graphical analysis by means of pie charts, bar graph.

.LIMITATIONS OF THE STUDY Small sample size is one of the limitations. It may not lead to accurate research. Time constraint-Less time for research and lack of expertise is one of the limitation. Scope of study is limited to Amritsar only because of limited time and money. So results of study are not to be generalized. Reliability of data- This study is base on the assumption that responses are true and factual although at times that may not be the case. Sampling technique may not give true representation of population.

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Data Analysis and Interpretation

Q.1. People of different age group - bankers& consumers.

Bankers
under 25 26-35 36-45 46 & above

16% 36%

28%

20%

Fig.5.1.1 Analysis of respondents of different age groups (bankers) Analysis: According to the above fig, in Bankers category 36% people belong to under 25years age group, 20% are in between age group of 26-35, 28% are in 36-45 and 16%people fall in 46 & above age category. Interpretation: From this we can interpret that most of the banking category fall in age group of under 25, following by 36-45 age group. This means mostly employees are youngsters & middle aged.

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Consumers
Once in a week

14%

16% 50%

20%

Fig 5.1.2: Analysis of respondents of different age groups (consumers) Analysis: According to the above fig, in Consumers age category 14% of people fall in under 25 age group, 52% in between 26-35 age group, 18% are in 26-45 age group and 16% people fall in 45 & above age group. Interpretation: From this we can interpret that most of the consumers availing banking facilities fall in age group of 26-35 years of age, i.e. the mixed aged group, the middle aged ones.

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Q.2. Gender of both bankers & consumers.

Bankers
Once in a week More than once in a week

29%

71%

Fig5.2 Analysis of gender (both bankers & consumers). Analysis: According to the above fig. we can analyse that there are 68% respondents are male& 32% respondents are females who are indulge in any banking activity i.e. whether bank employees or availing banking facilities. Interpretation: With this we can clearly interpret that major no. of respondents are males who are engaged in any banking related thing than females.

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Q.3. Accounts in the following banks (both bankers & consumers).

Bankers
Once in a week Once in a fortnight More than once in a week Once in a month

0% 0% 0% 14%

16% 50%

20%

Fig 5.3.1 Analysis of bankers working/ dealing in these banks. Analysis: Through this fig. we can analyse that there are 20% of respondent (bankers) who have their accounts in State Bank of India; following by 8% in Associate Banks Of SBI, 12% in Bank Of India, 24%in PNB, 16% in ICICI, 16% in Axis Bank & 4% are having their accounts in any other bank than these.. Interpretation: With this we can interpret that major banker respondents are having their accounts in Punjab National Bank following by SBI & Axis Bank and majority of the consumer respondents are having their accounts in SBI (older public sector bank) following by PNB & Axis Bank.

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Consumers
Once in a week More than once in a week Once in a fortnight

0% 0% 0% 14%

16% 50%

20%

Fig 5.3.2 Analysis of consumers dealing in these banks. Analysis: Through this fig. we can analyse that there are 32% of respondent (consumers) who have their accounts in State Bank of India; following by 12% in Associate Banks Of SBI, 10% in Bank Of India, 20%in PNB, 8% in ICICI, 12% in Axis Bank & 6% are having their accounts in any other bank than these. Interpretation: With this we can interpret that majority of the consumer respondents are having their accounts in SBI (older public sector bank) following by PNB & Axis Bank.

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Q.4. How frequently you visit your bank & operate your account?
60% 50% 50%

48%

40%

30% 24% 20% 20% 12% 10% 16% 14% 16%

Bankers Comsumers

0% Once in a week More than once in Once in a fortnight Once in a month a week

Fig 5.4: Analysis of respondents visit bank & operate their a/c (bankers & consumers) Analysis: From this above fig. we can analyse that 50% of bankers operate their account once in a week, 20% operates more than once in a week, 16% in once in a fortnight & 14%operates their accounts once in a month. Whereas 24% respondent consumers visit bank and operates their account once in a week, 12% more than once in a week, 48% once in a fortnight & 16% consumer respondents operates their bank accounts once in a month. Interpretation: Through this we can interpret easily that majority of bankers operate their account at least once in every week to check account balances and other things and majority of the consumer respondents visit banks & operate their accounts at least once in 15 days whether to deposit or withdraw cash or other things

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Q.5.Which of the following products & services you use with your bank?

30%

25%

24%

24%

20% 20% 18% 16% 15% 14% 12% 10% 10% 8% 6% 5% 4% 2% 0% 2% 12% 12% Bankers Consumers 16%

Fig.5.5 Analysis of respondents using banking products & services Interpretation: From the above fig. we can clearly analyse and interpret that majority of the banker respondents majorly avail facilities like saving account & FD to save their saving for future; following by debit & credit cards and all other, whereas consumer respondents mostly avail saving a/c facility with debit & credit cards, online banking facility & current a/c.

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Q.6.What is the approx. amount of money you transact with bank on monthly basis?
45% 40% 40% 35% 30% 26% 25% 20% 16% 15% 10% 5% 0% Less than Rs.10000 Rs.10001- Rs.50000 Rs.50001- Rs.100000 More than Rs.100000 12% 24% 20% Bankers Consumers 32% 30%

Fig 5.6.Showing the amount people transact on monthly basis Analysis: From this above fig. we can analyse that 24% of the bankers transact of amount less than Rs 10000, 26% transact between Rs.10001-Rs50000, 20% transact between Rs.500001-Rs.1 lakh & 30% bank respondents transact for more than Rs.1 Lakh. Whereas 32% of consumer respondents transact of less than Rs.10000 followed by 12% between Rs.10001-Rs.50000, 40% between Rs.50001-Rs1 Lakh & only 16% of consumer respondents transact of money more than Rs.1 Lakh. Interpretation: From this we can interpret that most of the bank respondents transact on a mixed amount basis as compared to consumer respondents where most they transact of amount between Rs.50001 to Rs. 1 Lakh.

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Q.7. Are you aware of any country having Islamic Bank?

30% 26% 25% 22% 20% 16% 15% Yes 10% 8% No 28%

5% 0% 0% Maximizing profits Help in Promoting Minimizing poverty sustainable cost of eradication development operations projects Enhancing product & services quality Providing employment opportunities 0% 0 0 0 0 0

Fig 5.7: Showing of respondents knowing of Islamic banks:Analysis: It can be clearly seen that majority of the bankers know about Islamic banks as 76% bankers said yes and only 24% said no, whereas majority of the consumer respondents do not know about the countries operating Islamic banking as 82% of the consumers said no and only 18% said yes. Interpretation: Thus we can interpret easily that most of the consumer respondents do not know about the countries operating in Islamic banking & those who said yes might belong to Islam (Muslims).

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Q.8. Please mark your opinion for the following statements:a) I understand the key concepts of Shariah guided in Islamic banking & finance. Bankers Strongly agree (2) Moderately 10 agree (1) Do not know( 0) Moderately 8 disagree(1) Strongly disagree(2) fx Mean score 2 0.04 -1 -0.02 5 0 5 22 41 4 5 Consumers 0

Analysis: Using Likert scale (for bankers) (5*2)+ (10*1)+(22*0)+(8*-1)+(5*-2)=2 Mean score= fx/f =2/50= 0.04 Using Likert scale (for consumers) (0*2)+(4*1)+(41*0)+(5*-1)+(0*-2)=-1 Mean score= fx/f =-1/50= -0.02
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Interpretation: Interpretation from the above calculation can be that in bankers category, the mean score is 0.04, and in consumers category, the mean score is -0.02, which means both are almost close to 0. This states that most of the bankers & consumers respondents do not know about the Shariah concepts of Islamic banking.

b) I am aware that giving of interest (RIBA) is forbidden in Islam. Bankers Strongly agree(2) Moderately 9 agree(1) Do not Know(0) Moderately 7 disagree(1) Strongly disagree(2) fx Mean score 8 0.16 1 0.02 0 0 5 31 39 6 3 Consumers 0

Analysis: Using Likert scale (for bankers):(3*2) + (9*1) + (31*0) + (7*-1) + (0*-2) = 8 Mean score= fx/f =8/50= 0.16
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Using Likert scale (for consumers):(0*2) + (6*1) + (39*0) + (5*-1) + (0*-2) = 1 Mean score= fx/f =1/50 = 0.02 Interpretation: From the above calculation this can be clearly interpret that both the mean scores of bank respondents & consumer respondents are 0.16 & 0.02, which is almost 0. This shows that both the respondent categories do not know or are not aware that RIBA (interest) giving is forbidden in Islam.

c).Islamic banking can be seen as an alternative to the current banking system. Bankers Strongly agree(2) Moderately 0 agree(1) Do not know(0) Moderately 32 disagree(1) Strongly disagree(2) fx Mean score -50 -1 -2 -0.04 9 2 5 9 36 7 0 Consumers 0

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Analysis: Using Likert scale (for bankers) (0*2) + (0*1) + (9*0) + (32*-1) + (9*-2) = -50 Mean score= fx/f =-50/50= -1 Using Likert scale (for consumers) (0*2) + (7*1) + (36*0) + (5*-1) + (2*-2) = -2 Mean score= fx/f = -2/50= - 0.04 Interpretation: Through this analysed calculation we can clearly interpret that in bankers category the mean score is -1 and in consumers category the mean score is -0.04, which means that bankers moderately disagree towards Islamic banking as an alternative to conventional banking. Whereas consumers actually do not know whether Islamic banking will be an alternative to conventional banking or not as due to lack of awareness about Islamic concepts.

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Q.9. Do you think Islamic banking & financial service is:Agree(1) Neutral(0) Disagree(-1) fx Mean Score True to the teachings of Islam? A good vehicle to promote Islamic values? Investing in business where is no risk? Practically not indulged in any businesses like gambling, alcohol or other? Promoting ways of life towards staff, clients & general public? Do not exploit its consumers in any way?
41

39

0.06

14

36

14

0.28

16

28

10

0.2

22

21

15

0.3

50

11

39

11

0.22

Properly reflect the values in which they are based? Are providing enough retail products? Contributing to social welfare? Use modern technology for transactions?

50

34

16

-16

-0.32

29

12

-3

-0.06

43

0.14

Above table showing the mean scores for all options using Likert scale. Interpretation: From the above table interpret that all the mean score for all the options are almost 0 or very close to 0, which clearly shows majority of the respondents are falling in neutral as they are giving mixed responses as due to lack of knowledge about the working & concepts in Islamic banking.

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Q.10. I believe that the following objectives of Islamic finance are being achieved by Islamic banks & Financial Institution: - (answer in yes or no)

Chart Title
Yes 26% 22% 16% 8% 0% Maximizing profits 0% Help in poverty eradication 0 0 0 0 0 No 28%

Promoting Minimizing cost Enhancing Providing sustainable of operations product & employment development services quality opportunities projects

Fig.5.10 Above analysis showing the perception of the bankers towards the Islams objectives achievement. Interpretation:Through the above fig. we can interpret that most of the banker respondents said yes for all the options, this means they know about all the features & objectives of Islamic banking. They believe that all the above mentioned objectives are achieved in Islamic banks & financial institutions.

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Q.11.Can Islamic banking be seen as an alternative to conventional banking?

Bankers
Yes No Can't Say

10% 26%

64%

Fig.5.11.1 showing the reviews of bankers:Interpretation:From the above fig. we can analyse & interpret clearly that majority of the bankers said no to Islamic banking as an alternative to conventional banking as there are various principles like RIBA, Gharar which will be implemented into the Indian banking scenario & the bankers will not get the interest or will not be able to generate more profits.

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Consumers
Yes no Can't Say

6% 16%

78%

Fig.5.11.2.showing the reviews of consumers:-

Analysis & Interpretation:From the above given fig. we can easily interpret as most of the consumers are confused and are unable to say whether Islamic banking will be an alternative to conventional banking or not. This clearly proves that they are not aware to the concepts & rules of Islamic banking.

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Q.12.If RBI amends rules & allows full fledged Islamic banking, can India attract huge investments from other countries?

Chart Title
Bankers Consumers 66%

50%

38% 34%

12%

0 Yes No Can't Say

Fig. showing whether India can attract investments from other countries Interpretation:Through the above fig. we can interpret that most of the bankers & consumer respondents are not sure about the fact that whether India will be able to attract huge investments from other countries or not if RBI amends rules & allows full fledged Islamic banking as Amritsar consists of more of Punjabis & Hindus rather than Muslims.

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Q.13. If your bank starts operating on the principle of Shariah; will you transfer your account to Islamic Bank?

Chart Title
Bankers Consumers 72% 56% 44% 28%

Yes

No

Fig. showing the views of both bankers & consumers in shifting to Islamic Banks Interpretation:We can easily interpret that both the bankers & consumers majorly do not want to transfer their accounts to Islamic banks if they come into existence as they feel that there will be new rules & laws which they do not want to implement or they are not ready to adopt Islamic rules. And those who said yes might belong to Islam.

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Q.14. What are the benefits of Islamic banking over conventional banking?

Chart Title
Bankers 52% 38% 30% 14% 18% 18% 0 No interest Profit Loss Sharing Uplifts lower section of society No Collteral required 36% Consumers

Fig. showing percentage analysis of the benefits of Islamic banking over conventional banking Interpretation:Interpretation from the above fig. is that the main benefit of Islamic banking over conventional banking is the no interest benefit as majorly respondents responded for this only followed by no collateral required, upliftment of lower section of society & profit loss sharing.

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Results and Findings Following are the results & findings obtained from conducted research:1. Most of the bankers fall in age group of under 25years & in 36-45. This most of the bankers are youngsters and middle aged.

2. Majority of consumer respondents who are availing any banking facilities fall in age group of 26-35. This shows that most of the consumers are middle aged.

3. Majority of respondents (both bankers & consumers) are male. This meansless females avail banking facilities as compared to males.

4. It was also found that most of the consumers are having their a/c in State Bank of India followed by PNB and Axis Bank.

5. It was also observed most of the consumers operate their account in 15 days time span. 6. It was observed that majority of the consumer respondents are not aware of Islamic banks or concepts related to Islamic banking and those who said yes are Muslims. 7. Majority of the bank employees are aware about Islamic Banks all in Arab countries deal in Islamic banks. 8. The major reason of non awareness about Islamic banking in respondents (both bankers & consumers) is lack of knowledge and interest. 9. It was also found after this research that majority of the bank employees do not consider Islamic banking as an alternative for conventional banking as it operates on Shariah rules in which interest is forbidden. 10. Consumers are confused regarding Islamic banking as an alternative for conventional banking as due to lack of awareness & knowledge.
49

11. Most of the respondents gave mixed response towards to amendments of Islamic rules as they do not have full knowledge about the subject. 12. At last most of bankers gave a mixed response towards shifting of their accounts to Islamic Banks and the same goes for the consumers availing banking facilities as well.

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Suggestions 1. After doing research for Islamic Banking in Amritsar city it was found that people are
very less awareness is there for Islamic Banking. Lack of knowledge & interest was the main reason for it. So I would suggest that firstly proper know& awareness should be spread before opening up any Islamic bank or any rules of Islamic concept.

2. As we can observe for the facts & figures lack of knowledge is only the major reason,
so I think it will not boom in the city like Amritsar as majority of the population are Sikh. So I suggest that it will be in losses in this kind of city.

3. But with the reviews of the bank employees, I would suggest that if Islamic banking
comes in India it can attract huge investments from other countries like Arab countries.

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Conclusion

After considering all facts and figures it is concluded that majority of respondents are not aware about Islamic Banks & its rules and concepts due to lack of knowledge. Bank employees do have knowledge about it as they work in banks so get to know about different things & products in which they are working. But in case to customers availing any kind of banking facilities are unaware with Shariah lawsand RIBA concepts. Majority of the respondents gave mixed responses towards Islamic banking which leads to bit of negative view.

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References

Andrews, M. Islamic Finance. Introducing Islamic Banking & Finace Concept , p. 15. Comparative Study Of Islamic Banking. Haron, S. (n.d.). A Comparative Study of Islamic Banking Practices. 10 (23-50). Hesse, M. C. (January 2008). Islamic Banks and Financial Stability:An Empirical Analysis. Daniel Hardy. (2008). Islamic banking In India-a study for future potntial. Crisil. Nordin, A. H.. A Study on Islamic banking Education & Strategy for the New Millenium. 2 (4). Sarshar, M. (JANUARY 2011). PRINCIPLES OF ISLAMIC BANKING AND WHETHER IT CAN BE APPICABLE IN I NDIA. Nwe Delhi. Saud, B. S. (January 2011). Performance analysis of Islamic Banking. Saudi Arabia. Shaikh, S. A. A Brief Review & Introduction to Practiced Islamic Banking & Finance. (Szabist, Karachi).

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