While an Islamic bank is one that is entirely operated using Islamic principles, an Islamic window refers to services that are based on Islamic principles that are provided by a conventional bank. Some commercial banks offer Islamic banking services through dedicated windows or sections.
Example of Islamic Banking
The Mit-Ghamr Savings Bank, established in 1963 in Egypt, is commonly referred to as the first example of Islamic banking in the modern world. When Mit Ghamr loaned money to businesses, it did so on a profit-sharing model. The Mit-Ghamr project was closed in 1967 due to political factors but during its year of operations the bank exercised a great deal of caution, only approved about 40% of its business loan applications. However, in economically good times, the bank's default ratio was said to be zero.
In general, Islamic banking institutions tend to be more risk adverse in their investment practices. As a result, they typically avoid business that could be associated with economic bubbles.
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