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A brief study
INTRODUCTION
Islamic banking emerged as a practical reality and started functioning in 1970s. Since then it has been growing continuously all over the world. Presently, Islamic banking industry has reached US$1.0 trillion US dollars by the end of 2008. International Rating Agency, Standard & Poor estimates that Islamic financial industry has potential to grow to US$4.0 trillion over medium term. It is surprising to note that global conventional banks like HSBS, Standard Chartered Bank, Deutsche Bank, Citibank, etc, have also set up separate Windows/Divisions to structure Islamic financial products and are offering Islamic banking services to their Muslim clients and even to those non-Muslim clients who are interested in profit and loss sharing (PLS) financial instruments. UK, France, China, Singapore and many other countries have developed special regulatory to facilitate the working of Islamic banking.
entity of that city was changed and it was emerged as one of the main business cities of Arab region. (K.Ali, Study of Islamic History, p.59). The tiny Muslim state was emerged from the city of Medina and was transformed into the big empire of the world due to introduction of pro-poor, equitable and welfare-oriented financial system. The next four to six centuries saw a continuous expansion of Muslim empire and high living standard of its citizens. The Muslims love for trade is expressed by Goitein (1967: 55) in these words: Merchants, craftsmen, and scholars alike would be combine journeys undertaken in their personal interests with pilgrimages to holy places. The Muslim pilgrimage, of course, far outstripped in importance those of the other two religious. In the first place, pilgrimage was one of the main religious duties of a Muslim, whereas in Christianity and Judaism it was only a meritorious deed. Secondly, from its very inception, the pilgrimage to Mecca was connected with the great transcontinental trade and remained so throughout the Middle Ages. The standing wish for a Muslim pilgrim was: May your Hajj be accepted, your sin be forgiven and your merchandise not remain unsold.
Prophet handed over these deposits and valuables to his cousin and son-in-law, Hazrat Ali for their onward return to their owners. (b) Hazrat Usman b.Affan, who later became Khalifa, was a wealthy and generous person. He generously supported the Muslims after embracing Islam and provided financial help to every one. He also lent money to Yaqub, a Jewish merchant of Medina, to carry on business with his money during the period of Hazrat Umar b.Khitab, Second Muslim Caliph. (Imamuddin, (1991:178).
The early 1970s saw 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 result of such involvement. 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.
still remains the pivotal part of Islamic banking, whereas principles of Islamic finance such as property rights, sanctity of contracts and the rules of sharing risk are also supported. In 1985, the High Council of OIC (Organization of Islamic Conference) declared takaful /Islamic insurance as Shariah compliant. The new, wider spectrum of Islamic finance covers not only banking activities but also capital markets, capital formation and other financial instruments and intermediaries. In most countries the establishment of interest-free banking had been by private initiative and were confined to that bank. In Iran and Pakistan, however, it was by government initiative and covered all banks in the country. The governments in both these countries took steps in 1981 to introduce interest-free banking. In Pakistan, effective 1 January 1981 all domestic commercial banks were permitted to accept deposits on the basis of profit-andloss sharing (PLS). New steps were introduced on 1 January 1985 to formally transform the banking system over the next six months to one based on no interest. From 1 July 1985 no banks could accept any interest bearing deposits, and all existing deposits became subject to PLS rules. Yet some operations were still allowed to continue on the old basis. In Iran, certain administrative steps were taken in February 1981 to eliminate interest from banking operations. Interest on all assets was replaced by a 4 percent maximum service charge and by a 4 to 8 percent profit rate depending on the type of economic activity. Interest on deposits was also converted into a guaranteed minimum profit. In August 1983 the Usuryfree Banking Law was introduced and a fourteen-month change over period began in January 1984. The whole system was converted to an interest-free one in March 1985.11 The biggest change in terms of adaptability came in 1991 when the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was established to advise on Islamic finance standards all over the world. Later, the development of uniform standards was supported by other organizations such as Islamic Financial Services Board (IFSB) in Malaysia in 2002. Since then, Islamic finance is spreading all over the world at a tremendous pace from virtual anonymity to becoming a powerful competitive force in the world today
CONCLUSION
In this modern age the Islamic banking considered as an alternative for interest based, not real economy stricken conventional banking. Economists state that the future of banking is devoted for Islamic ideologies and it will show the growth of more than 100% every year in spite of the downward growth of conventional banking system.
WEBLIOGRAPHY
Articles and thesis in: www.wikipedia.com www.kantakji.com www.crisil.com www.bankinginfo.com www.citilahore.edu.pk