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Abstract

Three decades ago, Islamic banking was merely an aspiration; however, rigorous research conducted over the past thirty years has demonstrated that Islamic banks are not only feasible but represent a viable pathway for financial intermediation and a modern necessity essential to all nations and socio-economic sectors. Consequently, numerous Islamic financial institutions were established across diverse economic environments, with the successful experiences in Pakistan, Iran, Sudan, and partially Malaysia serving as empirical evidence that Islamic banking provides a robust alternative to conventional commercial banking. These institutions are distinguished by their framework of mobilizing and investing funds in accordance with Sharia principles to foster social solidarity, ensure distributive justice, and direct capital toward effective community development. Nevertheless, the significant achievements of the past fifteen years should not obscure the substantial challenges facing the industry—some stemming from unfavorable operating environments and others arising from internal institutional practices—which this research seeks to address. The significance of this study lies in the Islamic banking industry’s demonstrated resilience and its evolution into a vital component of the global financial system despite its relatively recent emergence. Accordingly, this research aims to explore the nature of this unique banking model, its expansion, and its future prospects amidst global challenges. The study is grounded in a hypothesis framed by central inquiries: Has the Islamic banking industry successfully achieved sustained growth and international proliferation? And has it managed to build a solid institutional foundation despite the obstacles it faces? To answer these questions, the research examines the philosophy and drivers of Islamic banking, its investment mechanisms and funding sources, the dimensions of the challenges confronting it, and the future requirements necessary to navigate an evolving financial landscape.

DOI

10.33095/jeas.v14i51.1406

Subject Area

Economics

First Page

177

Last Page

193

Rights

http://creativecommons.org/licenses/by-nc-nd/4.0

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