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A Definition and Meanings of Terms

l-wadiah

means safe keeping.

Bai'muajjal

means deferred-payment sale.

Bai'salam

means pre-paid purchase.

Baitul mal

means treasury.

Fiqh

means jurisprudence.

Hadith

means prophet's commentary on Qur'an.

Halal

means lawful.

Haram

means unlawful.

Ijara

means leasing.

Iman

means faith.

Mudaraba

means profit-sharing.

Mudarib

means entrepreneur-borrower.13

Murabaha

means cost-plus or mark-up.

Musharaka

means equity participation.

Qard hasan

means benevolent loan (interest free).

Rabbul-mal

means owner of capital.

Riba

means interest.In any economy banks play very important role. A bank is areliable financial institution, which has core business of mobilizing the savings of people for investment purposes. Itreceives the money from one group and lends to other groupof people. So bank performs the duty of financialintermediary.Usually there are two types of banks, conventional banksand Islamic banks. In simple words Islamic banks operate ininterest free system. Prohibition of interest is ordained inIslam in all forms and intent. This Prohibition is strict,absolute and unambiguous. The Holy Qur'an in verse 278 of Surah Al-Baqarah states:"O ye who believe! Fear Allah and give up what remains of your demand for riba, if ye are indeed believers."Verse 2: 279 says:

"If you do it not, take notice of war from Allah and HisMessenger. But if ye turn back, ye shall have your capitalsums. Deal not unjustly and you shall not be dealt withunjustly."It therefore, follows that interest is prohibited as it leads toinjustices and Islam is against all forms of injustices andexploitations and pleads an economic system, which aims atsecuring extensive socio-economic justice. The Islamic law of prohibition of riba, which includes interest, was originally notbased on economic theory but on Divine Authority whichconsiders the charging of interest as an act of injustice (Dr.Siddiqui).Islamic banks appeared on the world scene as active playerstwo decades ago. But many of the principles on whichIslamic banking is based have been commonly acceptable allover the world for centuries rather than decades, as it isevident that Islamic finance was practiced predominantly inthe Muslim world throughout the middle Ages, promoting