Literature review Islamic financial institutions have made significant progress and achieved steady high growth despite

several obstacles, impediments, and challenges. Growth was led mainly by the initiatives of the private sector Islamic and conventional financial institutions in pursuit of capturing an emerging market. As a result of increased demand for products & compatible with both the Islamic economic and financial system the banking became more popular among Muslim and non-Muslims countries (Archer&Kareem 2007). Today maximum number of products present in the market is in compliant with the Islamic finance. A growing numbers of individuals and companies are now embracing their workings, which are based on Quranic principles (Quinn, 2008). The first modern experiment with Islamic banking can be traced back to the establishment of the Mitghamr saving bank in Egypt in 1963. During the past four decades, however, Islamic banking has grown rapidly in terms of size and the number of players. It is currently practiced in more than 50 countries worldwide (Chong & Lui 2009). Rising petroleum prices, increased attention on the Middle East as a result of politics, and competition between Bahrain and Dubai for the title of Middle Eastern financial centre are other factors contributing to the same (DiMeglio,2007). As argued by Sole (2007) Islamic banking is steadily moving into increasing number of conventional finance systems. It is expanding not only in nations with majority Muslim population but also in other countries where Muslims are minority, such as UK and Japan. Islamic banking and financial institution have a little success in making inroads in to the UK financial market. The scenario, however, dramatically changed over the recent years (Bhatti & Khan 2008). The figure below illustrates the development of Islamic banking in the world. . Figure 1: The Development of Islamic Banking. In august 2004, the Islamic bank of Britain (IBB) became the first bank to be licensed for engagement of Islamic transactions. Over the centuries the worlds financial system has been shaped by many different factors and events. Islamic views of finance and trade are based on the core principles of fairness and trust and have much in common with traditional JudaeoChristian viewpoints. The chart below illustrates the geographic breakdown for Islamic finance Figure: 2 Geographic breakdown of Islamic finance. (Source: International Finance Services London, 2008.) Islamic loans are becoming common among non Muslims, according to Power, (2009); half of HSBCs Islamic mortgages in Malaysia were taken by non Muslims the first year it was launched. Thus, Islamic finance has created an attractive market for non-Muslims and western investors, where in origin it was developed as pure investment for Muslims as alternative to the modern banking.