Islamic banking -- challenge and opportunity

A lengthy evolution has produced the modern conventional banking system. People used to interest-bearing transactions need a chance to be sufficiently moved to abandon interest. Setting up interest-free banks will call people to obey Allah's dictates for economic life. While Islam prohibits interest, it permits profit-and-loss sharing. Capital is not by itself a factor of production; rather, capital must always be linked to enterprise. Islamic banks are grounded in the institution of mudaraba (a venture that couples capital and entrepreneurship). Profit-and-loss sharing is a progressive financial outlook because it values management and results. By contrast, depositors with the conventional financial system have little concern for how banks invest their money. Since the Islamic system connects returns with bank profits, bank behavior will be watched more closely. An Islamic economy does not preset the cost of capital. In 1981, Pakistani banks began accepting profit-and-loss