1. Introduction

Islam through its economic philosophy has defined a complete system that prescribes specific patterns of economic behaviour for all individuals and society within an Islamic way of life. The concept of Islamic finance is only part of the key elements of Islamic economic philosophy and these elements will help the reader to develop a general framework of Muslim economic thinking and demonstrate the rationale and the principle of the idea of Islamic finance.

Islamic banking and finance is one of the fastest growing sectors on the global financial scene. It is growing at an annual rate of 15% with an estimated market size of US$ 400 bn in terms of funds under management operating in 75 countries worldwide (CIBAFI, 2009). Islamic finance is an emerging field that is gaining acceptance in native markets as an equitable form of finance as well as abroad where it is increasingly seen as a viable means of creating value in the market as a form of ethical banking.

Several factors have increased the number and interest among retail investors that parallel general societal trends toward observance of Islamic precepts, and the overall increasing relevance of Islamic finance to the economies of Muslim countries, while greater cooperation and collaboration between practitioners of Islamic finance on the one hand and both conventional Western financial institutions and Shariah scholars on the other, have developed the market further. But growth and competitiveness within the sector may be limited unless uniform accounting standards are introduced, developing a better understanding of the Islamic products and markets by regulating authorities and Shariah scholars as well as increased availability of skilled and experienced personnel.

The literature on Islamic and conventional systems practices can be divided into two main categories:

The first category concentrates mainly on theoretical and conceptual issues, such as historic review, the fundamental concepts, philosophy and system thinking, and theoretical background. (See appendix.)

The literature on Islamic finance from a pure Islamic fiqh perspective by Siddique (1988) and Parvez (1995), provided an extensive insight on the subject from an economic point of view.

Given the relative infancy of the Islamic finance industry, interest in researching the subject increased only in the past fifteen years. These papers tend to be specialized and concentrate mainly on modern day issues such as Wilson (2009) which gave historic overview on the development of Islamic finance, its impact and prospects.