Introduction

One of the salient characteristics of Islamic finance that distinguishes it from the conventional financing model is that the former complies, in objectives and operations, with Shari'ah. Banks are financial intermediaries. They collect funds by selling deposits to the mass population and lending these funds to borrowers who employ them in different projects. The payback of depositors' funds thus critically depends on the success of these projects that are subject to fundamental uncertainty. Both Islamic and conventional banks face the same uncertainty of entrepreneurs but at a varying degree. Conventional banks usually enter into a debt-contract with their clients. The current literature has given much less emphasis on these contemporary issues and, thus, falls short of providing a comprehensive explanation for resolving these dilemmas and challenges. Islamic financial institutions particularly banks have designed their products complying with the Shari'ah principles.