Evolution of Islamic Banking and Its Salient Features: An Overview

Abstract

Across the Muslim world, there has been a move to create Islamic financial institutions since 1960s. Islamic Banking has gained considerable momentum since second half of the 1970s and operative in more than forty-eight countries. One of the fundamental changes envisaged in the wake of the Islamic transformation of a modern economy is replacement of the institution of interest by profit-sharing. An attempt is made in this paper to trace the growth and development of Islamic banking and to highlight its salient characteristics. An outline of banking will be presented in an Islamic framework and the main focus will be on the forms of financial operations and key Islamic financial instruments. The concluding section will outline the relative importance and relevance of the monetary instruments for regulating money supply by the central bank in an environment of Islamic banking