The Historical Development And Contemporary Evolution Of Islamic Banking

Abstract

Islamic Banking, also known as interest-free banking, operates in strict adherence to Sharia or Islamic law, differentiating itself from conventional banking through the prohibition of interest (Riba) and engagement in unethical business activities. This paper provides a comprehensive overview of Islamic banking principles, including profit and loss sharing, risk sharing, and the prohibition of speculation (Maisir) and uncertainty (Gharar). The historical development of Islamic banking, from its origins in the early Islamic era through its modern resurgence in the 20th century, is explored. Additionally, the paper examines the distinct features that set Islamic banking apart from conventional banking, emphasizing the ethical framework and social responsibilities inherent in Islamic finance. The growth and stability of Islamic financial institutions in the global market, particularly during economic downturns, highlight its potential as a viable alternative to traditional banking systems.