A Comparative Literature Survey of Islamic Finance and Banking

With Muslims comprising about 27% of the world population, Islamic finance is a growing niche set to reach new levels of sophistication. However, Islamic finance with identifiable products and markets is in its infancy, and many problems and challenges related to Islamic financial instruments, markets, and regulations must be addressed and resolved.

This paper provides a comprehensive review of the literature of the Islamic finance as well as introduces Islamic financial instruments in order to compare them with those existing in other parts of the world. It also discusses the legal problems that investors in Islamic financial instruments encounter.

As the paper assesses the performance of the Islamic banking and financial sector and highlights the regulations, current challenges, and bottlenecks, it concludes that:

• Lack of developed markets in which Islamic financial instruments can be traded is one of the problems caused by the lack of cooperation among Muslim financial institutions;
• Further growth and development of the Islamic financial system will depend largely on the nature of innovations introduced in the market;
• Islamic financial system can offer alternatives at the microfinance level;
• Well-developed Islamic financial system can play a vital role in the economic development of Islamic and non-Islamic countries by mobilizing dormant savings and facilitating the development of capital markets.