Islamic Finance is classified objectively as Sharia based (risk and
reward sharing) and Sharia compliant (asset based financing).
Practice of Islamic banking witnesses the focus of Islamic
Financial Institutions (IFIs) on Sharia compliant products
(Murabaha, Leasing, Salam and diminishing Musharaka). Share of
Sharia based financing (Musharaka and Mudaraba) in portfolios of
IFIs is negligible. This study was intended to evaluate the
suitability of existing business and accounting frame work for
application of Sharia based financing. Findings suggest that
existing business and accounting frame work is not conducive for
application of equity financing. Loopholes in accounting frame
work, dominance of conventional banking, weaker audit institution,
riskiness of equity financing,lack of trust and confidence in
Musharaka Partner, higher taxes, lack of awareness, lack of skilled
human resource and profit manipulation behavior of business firms
are identified as hurdles in the popularity of Sharia based
financing. Prime difference of conventional and Islamic finance is
risk and reward sharing hence application of Sharia based financing
is vital for success of IFIs.
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