Development in Islamic banking: a financial risk‐allocation approach

PurposeThe core objective of this paper is to direct worldwide attention towards the unparalleled development in Islamic banking, its infrastructures and supporting institutions in recent years. This paper articulates the case for Islamic banking in a very comprehensive and effective manner. It depicts Islamic banking as a growing discipline adding more ethical, competitive and diversified tools and systems into global finance. It highlights the paradigm, theory and practice, achievements, pitfalls and future prospects of Islamic banking.Design/methodology/approachThe paper deals with the Islamic paradigm of borrowing, lending and investment. It presents the conceptual model and practice of Islamic banking. It covers other related issues over the recent development of Islamic banking across the globe.FindingsThe paper observes that Islamic banking has made unprecedented progress over recent years. The Middle East, South Asia and the Indian Subcontinent have emerged as hubs of Islamic banking. Western conventional regulators and investors and other agents have also shown a greater interest in and a receptive attitude towards Islamic banking. Despite all this, Islamic banking has been facing some core problems and challenges that will have deep impacts on its future growth and development.Research limitations/implicationsThe paper deals with concepts, information and other facts on Islamic banking that are not supported by any statistical analysis and empirical evidence. Thus this paper may be regarded as being subjective in its real essence.Originality/valueThe paper educates Western market players about Islamic banking tools and systems in their own language so as to bridge the gap between conventional and Islamic banking disciplines. It suggests that Islamic banking is an equity‐based system with conventional features. It makes an important point – that the main players from both the Islamic and conventional streams have a good opportunity to pool their expertise and resources to come up with better solutions in business, investment and finance.