3.0 Islamic Banking Now that, Islamic law has been defined and explained in detail, Islamic Banking

The Quran tenets encompass various life aspects that include God’s teachings, the way of harmonious living in the community, moral virtues, the regulations on financial matters, and specific obligations among Muslims males and females. In general, the sharia law is an extended platform that provides guidance on family affairs, criminal judgment, political perception, and economic factors. The law thrives on the precepts of religious attributions to God. Since the emergence of sharia law, various Islamic nations have endorsed most or parts of the

Becoming an expert in Islamic economics and finance field is one of my long-term goals in life. I started to organize and made a plan towards achieving that dream since senior high school. The concern towards Islamic economics and finance concept, and its application for society and the country began when I was reading a book entitled Islamic banking-theory and practice. After finishing reading the book, my interest in Islamic economic and finance topics rose and strengthen my own determination to become the expert of Islamic economics and finance. The main principle of Islamic economics and finance which offers the just and ethics in economic activity, poverty alleviation through income distribution mechanism, and prevention of economic and

Islamic banking is a structure that allows conducting banking activities and trades in line with the Islamic Shari’ah laws and principles by avoiding all the haram (prohibited) activity such as interest and financing prohibited businesses.

Islamic banking also provide the knowledge of Riba (interest) Hibha (gift) wadiah (safe keeping) ijarah ( lease , rent , wage) deposit product investment product and financing product (debt based) financing product (equity based ) trade finance

Islamic Capital Market is a major part of the overall Islamic Financial System especially in providing the component of liquidity to the otherwise illiquid assets. One of the most popular instruments used today in Islamic Capital Market is Sukuk. The structures of Sukuk based on Ijarah, Musharakah, Mudharabah and hybrid forms have evolved. Under any circumstances, these innovations have appeal to many Shari’ah issues and arguments. Therefore, this article aims at analyzing the challenges of realizing Maqasid al-Shari’ah in the Islamic capital market, focusing on sukuk instrument. In particular, this study evaluates on the approach of one of the most popular sukuk structure, namely, sukuk al-Ijarah in the light of the perspective of Maqasid

Islamic banking refers to a system of banking that complies with Islamic law, also known as Shariah law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between the provider of capital (investor) and the user of funds (entrepreneur). In other words, it ensures an equal contribution for all parties involved, whether in profitability or in case of any loss occurred. Activities that involve interest (riba), gambling (maisir) and speculative trading (gharar) are prohibited (Bank Negara Malaysia, 2010). Islamic banking is interest free banking; making it compulsory to take active part in business profit and loss sharing. Islamic banks prefer to take less risk (Shaikh & Jalbani, 2009)

This growing practice of Islamic banking will be discussed more fully in a later section as a modern application of usury prohibition.

Financial equity is a standout amongst the most critical lessons of Muslims. As indicated by the Qur 'an, the essential mission of all messengers of God was to set up equity in this world (Al-Hadid 57: 25). Most the Qur 'anic lessons are guided towards empowering individuals to live with each other in peace and to satisfy their shared commitments genuinely and steadfastly to guarantee equity and general prosperity (falah). Inside the domain of this mission of the Messengers, the Qur 'an predicts, and which is all well and good, that treachery drives eventually to demolition (Ta-ha 20: 111).

Islamic banking is banking action that is reliable with the ethics of sharia and its applied presentation over the change of Islamic economics. As such, a more right word for 'Islamic banking' is 'Sharia compliant finance'.

The shari’ah compliance finance has gained huge popularity among Muslim and non Muslim countries. The Islamic banking and finance has significantly increased an average of 20% to 30% over the last decade and it’s expected to grow fast for the coming years. Despite its fast growing globally and the increasing number of the shari’ah compliance financial institutions, the Muslim minorities in Sweden have no access to any financial service adherent to their religion principles. They are left behind without any functioning Islamic finance institution. Therefore, the Muslim minorities in Sweden are constrained obtaining loans from the Swedish conventional banks as the banks are non shari’ah compliance banks.

The prosperity and peace of a society much or less depends on its economy. While for the smooth running of both, there are several instructions in Islamic Shariah and allows what is right and forbids what is wrong. When we talk about financial issues, Islamic Shariah strictly condemns Riba. The question may arise why Islam prohibits Riba? While it was already in practice before the advent of Islam and still it is a part of different economic systems throughout the world. It is simply because Islam gives respect to human beings and condemns all the attempts that are harmful and disgraceful for humanity. Therefore, Riba is not only forbidden in Islam but economic experts are also in search of its substitute. Since borrowing on interest rate creates several issues including: less efficient allocation of resources, indebtedness, unemployment and economic instability. While in society it causes injustices, inequity, poverty and imbalance etc. In this paper we are discussing how Riba causes imbalance in the society and instead Riba what Islam demands from its followers.

The Accounting and Auditing Organization for Islamic Financial Institutions established on Safar 1, 1410 Hijri (February 26, 1990) at Algiers and registered in Bahrain on Ramadan 11, 1411 Hijri (March 27, 1991) has so far (April, 2004) set the following Financial Accounting Standards, Auditing Standards, Governance Standards & Code of Ethics for Accountants & Auditors of Islamic Financial Institutions:

It regulates public and private behaviors and actions of people” (Mulcahy). Sharia law consists of an exceptionally broad topic span and has been interpreted many ways, especially on unclear points. Mulcahy said “Although the word of Sharia cannot be altered, like any other religious text it should not be interpreted word for word. This has obviously not been the case and has led to religious extremism and a strong split between Muslims”. The rules of Sharia are single-handedly what distinguish Islamic Accounting from other methods.

Functions and governing modes are stood on Shariah and Islamic banks must make sure that all business actions are conforming to shariah necessities.

Many people are sceptical about Islamic banks performances into the niche as newcomers to the market according to Samad, (2004). As previously mentioned, Islamic finance operates in accordance with the Qur’an. Islamic banks are non-conventional financial institutions which completely prohibit the action of ‘Riba’ (Interest) under Islamic Banking. As Islamic finance follows strict ethical practices in its dealing with jurisprudence to the Qur’an, it is only natural that Islamic banks as new competitors face steep challenges in sharing deposit and credit markets