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19 CONTEMPORARY PRACTICES OF ISLAMIC FINANCING TECHNIQUES AUSAF AHMAD * This paper examines the current practices of contemporary Islamic banks in sources and uses of funds. It investigates how Islamic financing techniques are used by various Islamic banking institutions in different countries. The study also takes note of significant departures and major applications. The paper is divided into six sections including introductory and concluding sections. Section Two presents the current common practices of Islamic banks with respect to sources of funds. Section Three provides a survey of Islamic financing techniques with respect to uses of funds. Sections Four and Five describe the Islamic financing techniques used in Pakistan and Iran respectively and not covered in earlier sections. The last section concludes with suggestions with respect to further research. 1. INTRODUCTION During the last decade and a half, Islamic banking has made significant progress. At present, more than 50 Islamic banking institutions are working in different parts of the world and at least three countries have declared their intentions and also taken some necessary steps to reorganize their entire banking system along Islamic lines. The successful operation of Islamic banks in several parts of the world has led to a growing interest in Islamic financing techniques. Do Islamic banks really have something new to offer? Are the functions, activities and techniques of Islamic banks any different from those of conventional commercial banks? If yes, in what respect do they differ? What are the similarities or dissimilarities with respect to these activities among Islamic banks themselves? These and similar questions are generally raised whenever the subject of Islamic banking is mentioned. The raison d’être of Islamic banking is derived from the Islamic injunction against rib_ (interest). Islam prohibits interest on loans regardless of their nature or purpose. During the late nineteenth and early twentieth centuries when the Muslim world first came into contact with industrialization and such related economic and financial institutions as commercial banking, some attempts were made to dilute the strong injunction against rib_. It was argued that rib_ which is condemned and * Islamic Research and Training Institute, Islamic Development Bank, Jeddah, Saudi Arabia.
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