Definition of islamic banking

system of banking consistent with principles of Islamic law and Islamic economics. Islamic law prohibits the collection of interest, commonly called riba, although revenue-sharing arrangements are generally permitted. With increased trade between western nations and Islamic nations in the Middle East, Citibank, Deutsche Bank, and other western banks have been opening Islamic banking units since 1996. Because modern Islamic banking is relatively new, rules for financial accounting, bank governance, and lending standards are continually evolving as business practices become more refined. The Institute of Islamic Banking and Insurance, a London organization, says Islamic banks are structured to retain a clearly differentiated status between shareholders' capital and clients' deposits to ensure correct profit sharing according to Islamic law.