Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called ﬁqh muamalat (Islamic rules on transactions). The rules and practices of ﬁqh muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad). The credibility of the Islamic banking activities is highly dependent on the credibility of the Shariah advisers and the credibility of Shariah advisers may also depend on the perceptions and confidence of the bank managers in their role. In a conventional Bank they might have their legal adviser or business adviser; however these advisers are dissimilar from Islamic Banks' Shariah Advisers. It is because, the management of the conventional bank is not bound whether to take any advice given by their legal and business adviser or not; whereas Islamic Banks' management are obligated to adhere with the decision made by their Shariah Advisers when the product proposed or any operational issues defined contradicts with the Shariah principle. In order to ensure the modern application of banking system is in line with Shariah requirements, it is strongly stresses that the objectives of the establishment of Islamic Bank are to achieve the success in the world and in the hereafter. The objectives of Islamic banks may therefore differ greatly from the conventional bank's objectives. At present, every Islamic banks and windows have their own Shariah Boards; however a survey of the members of these boards would reveal that practical banking and product knowledge is very limited, thus there is a strong need for training. This puts a serious constraint on the ability of Shariah scholars to issue well-informed rulings on financial products and activities.
History of Islamic banking
Before Islamic banking been established, Muslims throughout the world has only conventional...
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