Challenges in the Application of Partnership Contracts in Islamic Banks: A Theoretical Analytical Study

Abstract

Abstract: Objective: This study aims to demonstrate the challenges associated with implementing the contract of participation in Islamic banks in the Kingdom of Bahrain and explore the extent to which the contract of participation and Islamic banks achieved the purposes of Maqasid al-Shariah. The study also presents the applications of the engagement contract in Pakistan and Oman. Methods: Using qualitative research, 10 Islamic Shariah experts, including Islamic bankers who have served in their bank for more than 15 years, were interviewed. Risk professionals with sufficient knowledge of the meaning and structure of the participatory contract were also interviewed. NVIVO software was used to analyze the data collected. Findings: The results of the study showed that the reasons for the rarity of Musharaka financing were the difficulty of implementing monitoring and its higher risks compared to other contracts, laws, and regulations. There was also a lack of awareness among staff and individuals of Musharaka financing. Results showed that the partnership contract based on the principles of profit and loss sharing achieves the purpose of Maqasid al Shariah more than other contracts. Implications: The study contributes to understanding the constraints that have led to the restricted use of Musharaka financing in Islamic banks in the Kingdom of Bahrain. The findings of the thesis also assist finance decision-makers and policymakers. Keywords: Islamic Banks, Musharaka, diminishing Musharaka, Maqasid al Shari'ah, Challenges of Musharaka.