Islamic Banking- The Need of the Hour

Abstract

Islamic Finance involves taking into account of the moral consequences of financial transactions and ensuring that contract is just and equitable for both the parties involved. Reward should be related to effort, responsibility and risk-sharing.
Interest Free Banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Shariah) and its practical application through the development of Islamic economics. Shariah prohibits the payment of fees for the renting of money (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haram, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Interest Free Banks were formed to apply these principles to private or semi-private commercial institutions.
This article speaks about the interest free banking system which is the alternative economic system to solve the global economic crisis. This is the new emerging industry that the world needs. The global Interest Free Banking system handles an estimated US$400 billion worth of assets every year. Estimates suggest the assets and transactions handled by the Interest free banking system are growing at a rate of over 20 per cent per annum as the current network of some 200 Interest free banks in the Middle East and Southeast Asia cater for a fast-growing global population.
This research work further focuses on historical details and the structural frame work of Interest Free Banking system and the religious concepts on interest. It compares the conventional and interest free products system. It examines the potential segments in India and the regulatory mechanism existing and requisite for functioning at large scale with sample cases.