Islamic Banking an alternate to interest-based banking is not banking in the traditional sense of the word. It derives its inspiration and guidance from the religious edicts of Islam and has to conduct its operations strictly in accordance with the directives of Shariah. Islamic financial system employed the concept of participation in the enterprise, utilizing the funds at risk on a profit-and-loss-sharing basis. At present, there are more than 300 Islamic Banks and other financial institutions managing funds to the tune of $300 billion, with deposits exceeding $ 120 billion and operating in 48 countries. To avoid interest, Islamic Banks have developed profit-sharing schemes in tapping and mobilisation their resources. Both Islamic Banks lending policy and lending principles are excellent tools for creating and developing entrepreneurs. In relation to entrepreneurs, the status of the Islamic Bank is either of partner or investor, whereas, for conventional banks the relationship is more of creditor-debtor. In this paper we have tried to trace out the growth of Islamic banking in Iran and the challenges faced by these banks in future. Islamic banking in Iran is currently facing tough time in the wake of dire economic sanctions against them. Apart from these conditions Islamic Banks may face many problems in the future because they do not have unanimous rules in the realm of Islamic Banking all over the world. One of these problems is that banks want to get their profits without taking any risk, so they impose all the risks to the costumers. Some Islamic banks escape from executing the Islamic rules. They assume that if they run Banking System based on Islamic rules they would face with some problems. This fear is baseless because they are accustomed to conventional Banking system and do not want to run the system based on other rules. This system does not cover a wide range of area. The amount of funding in these banks are less than in conventional Banks, this may weaken the Islamic Banking system in the future, but still the future of the global Islamic Banking industry offers continuing promise. The sheer size of the industry, running in billions of dollars cannot be over looked. Keywords: Islamic Banking, usury-Riba, Islamization, Interest free, Qard al-Hasanah.