Abstract:   Elimination of Riba has been one of the most important issue in Islamic Banking and Finance. Bank-Interest is almost unanimously regarded as Riba, However, all so called Islamic banks and other Islamic Financial Institutions have largely used debt-like Islamic Modes of Finance to replace interest. This situation has created confusion among general Muslims, Ulema, theorists and practitioners. This paper attempts to clarify some of the issues and asserts that only a profit and loss sharing Islamic Banking can Remove the negative effects of interest and provide the real benefit of Islamic System. The paper then discusses the problem associated with a Profit and loss sharing banking with special refence to the agency problem Mudarabah highlighted by Bacha. Finally, Some suggestions are provided for a genuine movement of establish a Profit and loss sharing Islamic banking.

Keywords:   Riba, Mudarabah, Musharakah, bai Muajjal, gharar, mysir

Publisher:   ILMA UNIVERSITY

Published:   1 December 2005

Issue:   Issue 2 : Volume 1

E-ISSN:   2409-6520

P-ISSN:   2414-8393