Dr. Monzer Kahf, Scholar in Islamic Economics and Financial Expert, stated:

“Banks as institutions date back to the sixteen century of the common era. This means that at the time of Prophet, peace and blessings be upon him, there were no banks.

However, the main activities banks do is finance and finance is as old as the human society. Normal finance activities used to take place in all societies thousands of years before the time of the Prophet, peace and blessings be upon him, and during his time too. Financing during the time of the Prophet, peace and blessings be upon him, used to take place through real transactions namely: sale on credit, renting, and pooling resources together from several people to create a new project or venture.

Of course some debts, created by sale on credit and lease may not be paid on the due date and giving an extension of maturity used to take place with increment. That is increasing the amount of debt for the new extended maturity. This is why many sharia scholars state that this is exactly the definition of Riba that is mentioned in the Qur’an as prohibited (2:275). Of course it goes without saying that the verse also covers creating a debt by giving money (loan) and charging an increment on this debt for the period until maturity.

Other banking activities like currency exchange and money transfer from one country to another used to be practiced too. Currency during that time was either gold or silver and there were needs from exchanging one for the other. This was done by merchants, but shortly after the Prophet, peace and blessings be upon him, within the first 200 years there existed merchants who specialized in providing the service of currency exchanged. They are called Sarraf. The Sarraf is the first historical version of a bank.

The Sarrafs in Damascus, Baghdad, Mosul, Halab, Cairo, and other Muslim cities were doing certain other functions in addition to money exchange. These functions included safe keeping of Money for their customers and providing them with payment facilities that used to be called Sukuk (s. Suk) or Ruqa’ (S. Ruq’ah). The suk was a piece of paper marked by the specific Sarraf given to the depositor whereby the latter can use it to pay the merchants from whom he buys goods by writing the name and amount of the payment on this piece of paper and then the merchant would submit this suk to the Sarraf to get his go
ld or silver. This facility was necessitated by the fact that metal currency was heavy and one wouldn’t carry it in pockets while roving the market to buy one’s things. This use of Suk in the origin of the check as we know it today. In fact, the word check itself came from the Latin Sek that came from the Arabic Suk. Is that a surprise to my questioner?

During the Crusades Europeans learned this profession from the Middle East especially Syrian, Iraqi and Egyptian cities and in the years that followed the 1200 CE we started seeing Sarrafs in the Mediterranean European cities, the European Sarraf later developed into banks when they started lending the extra money that is kept with them for safe keeping.

Lastly, we must realize that financial contracts like money exchange (Sarf), deposit (Wadi’ah), Sale on credit (Bay’ bi Ajal), loan (Qard), money transfer (Suftajah), advance-payment forward sale (Salam Bay’), etc. were known During the Prophet’s time and they were later described in details in the Fiqh literature as early as the first 200 years after the Prophet, peace and blessings be upon him.

We should realize that Islamic banking today has deep rooted history in the Muslim society that it can relate to.”