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Essay On Interest Free Banking

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CHAPTER 2: LITERATURE REVIEW In this chapter, the related theoretical and empirical literature review has been conducted which has involved details in each of the sub sections. 2.1 Definition of Basic Concepts An Interest free (Islamic) bank is a financial and social institution whose objectives and operations as well as principles and practices must conform to the principles of Islamic Shari “a (Ahmad and Haron , 2002). Interest free (Islamic) banking provides services to its customers free of interest, as the giving and taking of interest is prohibited in all transactions rather it provides awards or returns on the basis of Interest free (Islamic) banking performance through profit-and-loss sharing (PLS) as well as hibah or gift (Owen, …show more content…

Although scholars have discussed and analyzed issues with regards to a system of banking that is interest free based much earlier, much exclusive attention to the subject matter is a 20th century phenomenon (Bala and Zahara, 2009). According to Bala and Zehara (2009) the history of interest free banking could be divided into two parts. First, when it still remained an ideal; second when it became a reality by private initiative in some countries and by law in others. 2.3.1 Interest Free Banking as an Idea The idea of interest free banking got start in beginning of 1970s on unpretentious level. It has reflected marvelous performance between last twenty five years. In recent times lot of interest based banks comprising foremost international banks has been shifted towards interest free banking. This is the sign of encouraging to the interest free banking. The interest free structure of Islamic banks has proven viable banking system throughout the last 30 years. The interest free banking arrangements face two different aspects. On the first side the whole monetary structure is operated under the light of Shariah principals. However on the other side the dual banking system is

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