his study seeks to address the similarities and differences in Islamic and conventional banking while attempting to prove that Islamic banking offers greater promise as a tool for economic upliftment and prevention of financial crises.

A report by KPMG (2011) Islamic banking is a discipline which has its roots in the holy Quran, the sacred scripture of the religion of Islam as well as the Hadith which represents the teachings of the holy Prophet Mohammed (PBBUH). The discipline is also sometimes referred to as Sharia compliant finance.

1.1 Background of Islamic Banking

Islamic Banking is not very different from conventional banking subject to certain restrictions imposed by Islamic law (Sharia) and addresses the needs of a large number of business requirements. Islamic banking is not a mere replication of conventional practices. There are significant differences in what Islamic Financial Institutions (IFIs) do compared to conventional banking. IFIs have succeeded in creating trust in the eyes of depositors and receive deposits on profit and loss sharing basis. However investment and financing options available to Islamic banks are limited in comparison with conventional banks due to the restrictions against unethical investments such as speculation, gambling, alcohol, arms industry, pornography and all interest-based transactions. The difference between the systems are fundamental and at the very root of the operation of Islamic banking activities.

This difference nevertheless has immense implications for the future of