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This investigation tries to address the similitudes and contrasts in Islamic and traditional banking

1.0 Introduction

This investigation tries to address the likenesses and contrasts in Islamic and customary banking while at the same time endeavoring to demonstrate that Islamic financial offers more prominent guarantee as an apparatus for monetary upliftment and avoidance of money related emergencies.

A report by KPMG (2011) Islamic banking is a control which has its foundations in the heavenly Quran, the holy sacred writing of the religion of Islam just as the Hadith which speaks to the lessons of the blessed Prophet Mohammed (PBBUH). The control is additionally some of the time alluded to as Sharia consistent fund.

1.1 Background of Islamic Banking

Islamic Banking isn't altogether different from regular banking subject to specific confinements forced by Islamic law (Sharia) and addresses the necessities of an enormous number of business prerequisites. Islamic banking isn't an insignificant replication of ordinary rehearses. There are noteworthy contrasts in what Islamic Financial Institutions (IFIs) do contrasted with ordinary banking. IFIs have prevailing with regards to making trust according to contributors and get stores on benefit and misfortune sharing premise. Anyway venture and financing choices accessible to Islamic banks are constrained in correlation with ordinary banks because of the limitations against dishonest speculations, for example, theory, betting, liquor, arms industry, erotic entertainment and all premium based exchanges. The distinction between the frameworks are key and at the very base of the activity of Islamic financial exercises.

This distinction all things considered has monstrous ramifications for the eventual fate of banking. As the Vatican's legitimate organ, L'Osservatore Romano (2009), expressed self evident reality a couple of years prior: "The moral standards on which Islamic money is based may bring banks nearer to their customers and to the genuine soul which should stamp each monetary help".

1.2 Current Situation

Today Islamic banks are working in almost all Muslim nations and numerous non-Muslim nations. This has been so as far back as the 1970s when Islamic banks originally developed in the Middle East. Not at all like traditional financial industry, the Islamic financial industry gives just the Islamically good budgetary administrations for their clients. In this way, administration as per Islamic necessities is fundamental to the framework. A notable saying in the business goes "An Islamic Bank is in the same class as its Sharia Board". The Sharia board figures out what items such a bank could conceivably offer. This is a key component of Islamic financial industry which recognizes it from the traditional budgetary framework.

Traditional bets on the other hand have been set up on unbridled free enterprise standards dependent on intrigue which is unsatisfactory in Islam (Quran 2:275). Along these lines Muslims have had minimal decision however to set up their own money related establishments under Islamic standards and not in view of any craving to be selective in any sense. Actually Islamic banks advance their items and administrations to all, regardless of their strict connection while driving regular players have likewise set up Islamic windows to satisfy the strict necessities of their Muslim clients.

Given the challenge with the traditional money industry, Islamic budgetary Institutions (IFIs) offer focused costs of their administrations including financing, all around dependent on the reason that clients should come to them put together not with respect to strict impulse yet veritable conviction. In this manner come back to investors as well as charge to clients of assets is practically equivalent in the two floods of banking. Consequently on the off chance that we contrast Islamic money and ordinary fund dependent on the result [returns] of the exchange, we can sensibly presume that there is no significant distinction among Islamic and traditional account. This is the purpose behind boundless misperceptions about Islamic money even in Muslim social orders.

1.3 Aims and Objectives

As indicated by Sharia, reasonable play is required and no particular pace of benefit is settled. It is the procedure of exchanges through monetary agreements which separate Islamic account from customary fund. Thus this investigation is an endeavor to comprehend the component of the Islamic money related framework and archive the similitudes and contrasts with the regular budgetary framework. This investigation archives the items (modes) utilized by Islamic Financial Institutions (IFIs) and regular banks in their tasks including store assortment, overhauling and arrangement of financing offices, speculations and so on.

Along these lines, the goals of this examination will be as per the following:

• To dissect the various practices towards Islamic banks over customary banks.

• To give individuals the mindfulness that will cause them to pick the best financial framework to satisfy their needs.

• Discuss the plausibility of potential development for Islamic financial administrations in Sri Lanka.

1.4 Chapter Outline

Having talked about the points of the examination, the investigation proceeds with Introduction to Islamic banking, ordinary banking and pursued by surveys of a portion of the relative examinations on Islamic banks just as on traditional banking is shrouded in writing audit in part 2. Information and Methodology utilized for the investigation are talked about in detail in part 3 while observational discovering/examination and end establish section 4 and 5 separately.

2.0 Literature Review

2.1 Introduction

Islamic banking is a developing segment with its decent variety in various sections and range. It provides food for Muslim's overwhelmed networks just as in nations where Muslims are in minority. Moreover, it is an expansive standard, people and networks that look for moral budgetary arrangements have been pulled in to Islamic banking. It is obvious from banking practice that Islamic banking is similarly well known in many networks.

It is obvious from above proclamations that Islamic banking isn't just Islamic or explicit banking yet a framework which gives increasingly moral and good idea of money related arrangements.

As expressed by Muhammad (2013, pp.14) Islamic banking is a monetary establishment whose rules, rules and techniques explicitly express its promise to the Principles of Islamic Sharia and to the prohibiting of the receipt and installment of enthusiasm on any of its tasks.

Further in a report by the International Federation of Accountants (2015) Islamic fund—or maybe more precisely, Sharia-agreeable money is a type of money where the financing action is as per the standards of Sharia law, the good and moral code of the Islamic religion. Dissimilar to ordinary fund, Islamic account denies all types of enthusiasm for loaning cash (that is, usury), interests in organizations that give products or administrations thought about in opposition to Islamic standards, and selling things that one doesn't claim (that is, short-selling). While these disallowances are attached to the essential convictions of Islam, thus have been applied for many years by Muslims, Islamic money has just more as of late showed itself in budgetary items, administrations, and foundations. In the broadest sense, Islamic money standards are proposed to put some thought on society in general – the effect that all monetary action has on the welfare of individuals and their locale. Today there are various banks and other monetary establishments, just as units inside ordinary banks and budgetary organizations, that apply these standards.

As indicated by KPMG (2011) report, the Sri Lankan Banking Act No.30 of 1988 was altered in 2005 to allow authorized business banks and authorized particular banks to offer chosen Islamic money instruments. In Sri Lanka there is a completely fledged Islamic bank and scarcely any authorized banks work Islamic windows.

2.2 Islamic Banking

According to Venardos (2012, pp.44) the main Islamic bank was begun in Myt.Ghamar investment funds bank in Egypt in 1963. The investigation of Ahmad (2010, pp.99) uncovers that Islamic financial development accomplished enduring advancement and expected critical measurement through the foundation of the Nasser social bank in 1972, Dubai Islamic bank in 1975, and Faisal Islamic bank in Egypt and Sudan in 1977. From that point forward there has been a consistent development everywhere throughout the world with Islamic banking setting up itself even in western nations with numerous regular banks likewise making Islamic money related instruments.

As per the UK Islamic Finance Secretariat, the worldwide market for Islamic money toward the finish of 2011 was worth around $1.3 trillion and, in spite of the Global Financial Crisis, Sharia-agreeable resources have become fundamentally in the course of recent years. As indicated by a similar Economist article, all inclusive banks hold over 90% of Islamic resources and, together with reserves, are huge financial specialists in Sharia-agreeable bonds known as Sukuk (The Economist on the web, 2012).

2.3 Conventional Banking

Traditional banking framework alludes to all banks that don't work on Islamic standards. Ordinary banks utilize enthusiasm as their focal apparatus revenue driven making. The proprietors of regular banks consequently make benefit absolutely on premium and which is the main wellspring of benefit. Ordinary banks give the full scope of monetary administrations, covering each need in each division, with enthusiasm being focal in the entirety of their exercises.

2.4 Differences between Islamic Banking and Conventional Banking

According to Schaik (2001, p.46) Islamic banking varies from traditional banking in 3 different ways, First of all, in its crucial goals, since Islam is the foundation of Islamic banking, moral standards and destinations assume an increasingly significant job in the tasks of an Islamic bank than in a non-Islamic bank. Second, in its items: an Islamic bank offers no enthusiasm bearing items or administrations, for instance, and is mor