Constraints in the Application of Partnerships in Islamic Banks: The Present Contributions and Future Directions

Abstract

Partnership is considered as the essence of Islamic banking. Therefore, Islamic banks are supposed to rely on the partnership contracts for acceptance of deposits and investment of funds. In practice, Islamic banks adopt partnership contracts for accepting deposits. However, these are rarely used while investing. All over the world, Islamic banks rely heavily on non-partnership contracts for investment of funds. The present paper provides a critical review of the extant literature on the rare use of partnership contracts by Islamic banks for investment purposes. This review highlights the contributions that extant literature has made to the current knowledge about the constraints in the application of partnership contracts in Islamic banks. From this review, concentrations of research efforts are identified and directions for future research are proposed