European Journal of Social Sciences ISSN 1450-2267 Vol. 45 No 3 December, 2014, pp. 262-281 http://www.europeanjournalofsocialsciences.com/ 262 Islamic Banking: Basic Guidelines for Researchers Saeed Al-Muharrami Associate Professor, College of Economics and Political Science Sultan Qaboos University, Sultanate of Oman P.O.BOX 20, PC 123, Seeb, Oman E-mail: muharami@squ.edu.om Tel: (+968) 24141838; Mobile: (+968) 92886090 Abstract Islamic banking is different in nature from conventional banking. Islamic banks are very innovative in creating Profit Loss Sharing contracts to satisfy their customers. They deal with their customers on investment grounds rather than a pre-determined fixed interest rate. They invest the money of their depositors on high profitable projects after going through a strategic analysis in order to give a substantial return to their depositors. These kind of innovative financing contracts are giving the popularity to Islamic banks. This paper discusses the Islamic financing modes and contracts and their operations and gives brief illustration about Islamic banking. The paper is a good summary for researchers. Keywords: Islamic Banking, Modes of Islamic Financing, Profit Loss Sharing,Shari’ah Advisory Board, Sukuk. JEL Classification Numbers: G2, G3, and G21 I. Introduction The Islamic banking industry has grown rapidly in recent years, and has become an important part of the financial systems of many countries, and even systemically important in a number of countries. As countries look to diversify their banking sector Islamic banking has emerged as an attractive alternative option. This trend has recently intensified as more countries rethink international best practices and look to alternative growth models. Islamic banking is no longer limited to Islamic countries. Today a wide variety of countries ranging from Bahrain, Indonesia, Luxembourg, Nigeria, Singapore, South Africa, Turkey, United Arab Emirates, and United Kingdom have some form of Islamic banking activities in their jurisdiction. According to Sanusi (2011), the number of Islamic financial institutions worldwide has risen from one institution in 1962 to more than 435 full‐fledged institutions, and 191 windows of conventional institutions, operating in over 48 countries, with Bahrain, Malaysia and UK being global hubs and shining examples. According to an estimate of Standards & Poor’s (2009), total Shari’ah compliant assets worldwide have grown to about US$ 700 billion––with annual growth exceeding 10 percent during the past decade. In the wake of high Asian domestic savings rates and buildup of the region’s foreign exchange reserves as well as oil surpluses of Middle East for last few years, Islamic finance is now also emerging as a way to wealth management, both of richer nations and high net worth individuals. Many countries with traditional strengths in regulating conventional banks are now seeking to better understand the regulating of Islamic banks. Some Islamic banks are owned by conventional banks or operate as units within conventional banks as “Islamic banking windows.” Islamic banking is projected to continue growing at a rate exceeding the growth rate of conventional banking for the foreseeable