ABSTRACT
The phenomenal growth of Islamic finance in the last couple of decades has attracted considerable attention from scholars and policymakers alike. Various issues including the distinctive nature of Islamic finance, its impact on the development and stability of the financial system, the long-term sustainability of the model and its competitive advantage over the conventional counterpart occupy the center of academic discussion. One of the distinct characteristics of Islamic finance is risk sharing. The financier and the entrepreneur mutually absorb the risk involved with a project through equity and/or equity-like participation. This in turn results in the spread of venture firms leading to larger business activities and economic progress. While these expected benefits cannot be neglected, a large segment of the Muslim population has not yet fully embraced Islamic finance as a way of their economic lives due to various reasons. According to some scholars, the current practice of Islamic finance conforms less to the substance of Islamic teaching because Islamic finance is dominated by the banking industry that prefers debt-like financing over PLS contracts, although diversity in Islamic financial products, to some extent, very recently can be noted.
