Abstract: Islamic banking and finance as an industry is growing at an unprecedented rate. Currently, there are about 270 Islamic banks worldwide with a market capitalization in excess of US$13 billion. The assets of Islamic banks worldwide are estimated at more than US$265 billion and financial investments are above US$400 billion. Islamic bank deposits are estimated at over US$202 billion worldwide with an average growth of between 10 and 20 per cent. Furthermore, Islamic bonds are currently estimated at around US$30 billion. In addition, Islamic equity funds are estimated at more than US$3.3 billion worldwide with a growth of more than 25 per cent over seven years and the global Takaful premium is estimated at around US$2 billion.
Islamic finance is founded mainly on the prohibition of riba’. Thus, the main aim of Islamic banking and finance is to provide an Islamic alternative to the conventional system that is based on riba. As an alternative to riba, the profit and loss sharing arrangements are held as an ideal mode of financing in Islamic finance. It is expected that this profit and loss sharing will significantly remove the inequitable distribution of income and wealth and may lead to a more efficient and optimal allocation of resources as compared to the interest-based system. Thus, it will ensure justice between the parties involved as the return to the bank on finance is dependent on the operational results of the entrepreneur (Siddiqi, 2001).