Islamic banking is a banking system in reference to the Shariat. According to Muslim ideology, currency has no intrinsic values – money, thus, may not be sell at earnings and is permitted to be used as per shariat only. The Islamic principle ban paying any charge for hire of money (riba) for particular period. The Islamic law also bans any investments in business that is believed haraam. This ideology has been obtained from the Quran and has been follows since then. During the last twelve years the Islamic banking segment has grown quick, at globally. The study tried to examine factors affecting rise Islamic banks in the time of financial crisis. There is a common argument is that Islamic banking system is safer than traditional banks. The key reasons are their product structures that are basically asset backed financing. Research works before recent global financial crisis have in general summed up that the performance of Islamic banks have been far better than traditional banks. This research paper reveals that Islamic bank has suffered more than traditional banks in the time of global financial crisis regarding capital ratio, leverage and return on average equity, where as traditional banks have suffered more than Islamic banks. The study also tried to investigate the effect of Islamic banking on the economic development, by identifying and analyzing the key approaches that Islamic banks can be successful in India and other nations.