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Introduction
Current practices of Islamic banks around the world diverge in several ways from the ideal conventional system. These differences can be summarized in four main points. First, all deposits, including investments are always explicitly or implicitly assured, in some cases the amount of capital guarantees is formally written in laws and regulations; in other cases, it is based on the implicit understanding among the authorities. Second, The PLS principle is never strictly applied because there are various degrees of noncompliance with respect to the PLS principle in current practices of banks. Third, financing is mostly done by non-PLS modes. On average, Islamic banks operate through the less risky. Fourth, there is discretion in deciding if collateral Islamic banks are allowed to use a degree of discretion in deciding if collateral is needed before gaining their facilities, including the PLS mode of financing ([10] Zahir and Hassn, 2001).
Definition of Islamic banking
Islamic banking is defined as a banking system that is based on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.
Islamic banking refers a system of banking or banking activities that is consistent with Islamic law and principles and guided by Islamic economics (Sipra, 2002).
Islamic banking around the world
The number of Islamic banks around the world is 396 in 53 countries managing a total fund of US$442 billions. In addition, non main stream banks around the world which offers Islamic banking windows are 320 banks managing a fund of US$200 billion. According to the organizational of Islamic countries OIC's association of the Islamic banking 2008 report with a growth average of 15 percent per annum. Although, most Islamic banks are located in or around middle east area but the recognition for Islamic banking products and services are increasing from day to another (Scribd, 2010).
Over the past two to three years approximately more than 50 Islamic financial market institutions opened Islamic financial services, especially in the middle east region where Islamic banking has been marking a remarkable footprint, for example, NOOR Islamic Bank...