ABSTRACT

Islamic banks are prohibited from dealing with interest and excess uncertainty, the two dominant features embedded in conventional banking practices. Although many Islamic banks claim to invest and finance complying with Islamic principles, scholars however dissent in opinion as to whether Islamic banks are really Islamic. Critics of Islamic banking support their arguments drawing evidence from the analysis of investment patterns of Islamic banks. The Arabic root of the word musharaka is shirkah which means being a partner or sharing. Murabaha is the dominant mode of finance of Islamic banks across the world. The term 'murabaha' refers to a particular kind of sale. There is a serious debate as to whether murabaha or mark-up transaction really complies with Islamic principle. The debate stems from the fact that the mark-up or the extra charge above the cost price is pre-fixed which is akin to conventional bank lending.