ISLAMIC FINANCE

‘Islamic Finance:

Challenges and Opportunities’
A Special Issue of the Journal of Financial Services
Marketing
The Islamic financing system was introduced commercially in the 1970s with the goal
of providing social justice and ethical financing options. The basic principle of
Islamic financing is the prohibition on the payment and collection of interest.
Therefore, unlike conventional banks, Islamic banks invest in the assets on behalf of
the clients for a return on the investment based on arrangements such as profit and
loss sharing. The launch of Islamic financing was seen as an attempt by the
Organization of Islamic Countries (OIC) to commercialise a system that had been
successfully practiced by traders in ancient Arabia long before the advent of Islam.

Since its launch, Islamic financing has grown at a annual rate of 10-15 % in both .Muslim and non-Muslim countries and it is estimated that today the assets of Islamic
banks are worth more than $300 billion. The Islamic financial system offers
opportunities for entrepreneurs: the prohibition on fixed interest repayments means
that the banks share the risk of the business venture’s failure with the entrepreneur,
thereby creating a more equitable relationship. But a limited range of interest-free
financial products and a limited market size are some of the challenges that Islamic
banks face.



In view of the current global financial crisis, where many are questioning the lending
practices of conventional banks, Islamic financing has the opportunity to strengthen
its position as a legitimate financing alternative and increase its global market share.