Islamic banking

All banks also the Islamic ones are based on fractional reserve banking, i.e printing a piece of paper and calling it money. In terms of interest which is forbidden, Islamic banks use many different instruments like lease, Mudaraba, tawarruq, joint venture etc. Some are based on asset and the real economy, others are controversial and just mimicks conventional interest bearing instruments.

Fractional reserve banking is counter to the Shariah. Islamic banking operates on a 100% deposit backing system.

The simplest example would be a fixed deposit. Say a client invest for a year in an Islamic Bank. The bank would utilise funds in profit and loss sharing ventures, investment in approved stocks and buying and selling in cost plus agreements. The profit on these endeavours would be shared amongst the depositors/bank on a pre-agreed upon ratio. Should there be no profits the depositor would not gain anything and only the deposited amount would be returned.

Important to note if we use the Malaysian banking system that on average interest rate returns are only 1% point above their Islamic banking counterparts.

That is correct sir. The returns on Islamic products are on average not as high as conventional banking products. However the funds are in an investment fund rather than shares in the actual bank.

It promotes one of the basic tenets of Islam, redistributing wealth from rich to poor. Whereas traditional banking moves wealth from poor to the well off. The evils and prohibition of interest based banking is found in all religious scriptures. Therefore perhaps a better term is religious/ethical banking (if I may call in that) as opposed to calling it Islamic banking. Religious banking represents the equitable and just (for individual and society) alternative the "other" 99% of us have been looking for.