The Islamic finance system provides unique advantages that are often absent in the traditional financial system. For example, under the Islamic system, profit-sharing directs investible money to projects with the highest predicted profitability, as opposed to the interest-based system, in which funds are directed to the most creditworthy borrowers, whose projects may or may not be the most lucrative. As a consequence, the distribution of products and services fulfills society's common interests in the greatest way feasible. Furthermore, profit-sharing contributes more to economic growth since it increases the availability of risk capital for investment and provides greater incentives for taking such risks owing to projected return. As a result, the Islamic system encourages 'integrated' economic growth by encouraging the use of money to facilitate trade in products and investment in productive capacity rather than generating money for the purpose of making money. This Islamic finance framework is believed to be more stable and less vulnerable to financial crises caused by speculative activity.

The fundamental difference between Islamic and conventional finance is how risk is addressed and shared.

The two main kinds of Islamic finance are bank financing and the issue of Islamic securities (called sukuk).

These are commonly referred to as debt – bank loans and bond issues, respectively – but this is inaccurate. These categories do not apply to genuine Islamic financing.

In Islamic finance, interest is prohibited. A firm's risk is not shared equally if it is financed by debt with an obligation to pay interest. (Michael P., 2018)

Instead, Islamic finance requires that money be distributed based on profit and loss sharing. Shariah law permits the use of many types of contracts to provide finance. Each kind describes how risk is shared by the company and the financier.

A mudarabah is an example of such a contract. This defines how the lender's and entrepreneur's profits and losses will be divided. Profits are dispersed in a predefined ratio, thus the financier's return fluctuates with the profitability of the firm. Except for losses caused by the entrepreneur's deceit or ineptitude, the financier must pay for all losses in full. In contrast, the financier has a contractual right to earn interest (and capital repayment) regardless of the health of the borrowers' business in a typical loan.

• Efficiency and Profitability

Islamic banks efficiency is equivalent to that of regular banks. Many contend that, despite variations in business strategies between conventional banks and Islamic institutions, the efficiency of both banking systems was not considerably different prior to the current global crisis (Mauro, 2013). However, the narrative seems to have shifted amid the financial crisis. According to recent research, the profitability of Islamic banks declined more than that of conventional banks during the crisis, owing to worse risk management methods and financial crisis spillovers into the real economy .Although worldwide research shows that Islamic banks' cost and profit efficiency are increasing, Islamic banks in industrialized nations seem to be more efficient than those in developing ones. This might be explained in part by these nations' well-established regulatory frameworks, more sophisticated human resources, and superior risk management techniques (Tahir and Haron, 2010).

• The Risks of management

In addition to the dangers that conventional financial institutions confront, Islamic banks have additional hazards that are specific to them. The Shari'ah-compliant character of their assets and liabilities separates them from traditional banks while subjecting them to comparable market, liquidity, liquidity ,credit ,operational, and legal concerns. Notably, variations in opinion among religious scholars over Shari'ah compliance of certain financial arrangements might subject Islamic banks to Shari'ah noncompliance. Furthermore, operational variations across nations result in differing permitted financial products, generating legal confusion in the field of cross-border Islamic financial activity (Jobst, 2007). Islamic funding is also fraught with legal risk, since customers may seek redress in Shari'ah courts that decide on a case-by-case basis, as well as in ordinary courts. Furthermore, Islamic financial institutions may face economic pressure to provide competitive rates of return that exceed returns on the assets being funded, which means that shareholders may have to forego a portion, or all, of their share of profits to reduce the risk of the funds withdrawal. Such vulnerability to the rate of return risk (due to unanticipated changes in interest rates) creates a risk that is specific to Islamic banks known as displaced commercial risk. Finally, equity risk develops when Islamic banks participate in musharakah and mudârabah partnerships as fund providers and partake in the business risk of the funded activity.

• Sukuk and Traditional Bonds

Sukuk are typically asset-backed financial instruments. Sukuk, according to the AAOIFI, are certificates of equal value that indicate undivided ownership of physical assets, property rights, and services. The International Islamic Financial Market (IIFM) gives another definition, defining Sukuk as "commercial paper that provides an investor with property in an underlying asset." Sukuk are not debt certificates with a financial claim to cash flow, and they cannot be issued on a receivables pool. They are more like a trust or ownership certificate, with a proportional or undivided stake in a project or asset and the right to a proportionate part of cash flows. The underlying asset or project distinguishes Sukuk from conventional bonds, which establish a pure debt obligation for the issuer, with monetized assets being Shari'ah-compliant in their nature and usage.

Some of the Islamic finance advantages :

Advancing Financial Justice:

The Islamic approach is based on financial fairness. Islamic banking distributes net profit or loss between the lender and the recipient rather than only on the businessman. If an Islamic bank finances a project, the profits are split evenly between the two parties. If a financier expects to profit from a project, he should also commit to share in the loss.

FINANCIAL INDEP

Muslims avoid traditional banking since it is centered on paying/receiving interest, which is banned by Shariah Law. Nearly a third of the world's Muslims are unbanked. With Islamic banking, Muslims can participate in the financial system.

Reduces Harmful Products And Practices Impact:

Alcohol, cigarettes, gambling, pornography, etc. are all prohibited in Islamic banking, regardless of whether they are allowed in a specific jurisdiction.

Improves financial stability:

Unlike the regular banking system, Islamic finance invests conservatively and makes decisions thoroughly. Risky businesses are frequently kept out of banking institutions. That's why Islamic financial institutions escaped the 2008 global financial crisis. The Islamic finance institution reduces risk and improves financial stability via meticulous audits and research.

Ethics And Morality:

One of the main elements of Islamic banking is its ethical and moral ideals. This promotes socially beneficial investments and stronger individual/corporate relationships.

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