Rafay and Sadiq (2015) studied that financial institutions andIslamic banks are faced by many difficulties and challenges mainly due tonon-existence of a comprehensive framework. Those problems are existence ofdifferent schools of thought and idea within Islam, lack of general awarenessamong various stakeholders and ineffective legal rules and regulations. Islamicfinance want to provide a financial system that is asset backed and free chargeof interest.
By solving these existing problems in the fragmented framework, thedevelopment of framework will guide the future research. It will help to smooththe transformation and make it manageable from conventional banking system toIslamic banking system. Zahan and Kenett (2012) studied that conventional andIslamic banking market places had applied the both instruments of riskmanagement and hedging. In this research, they have compared the instruments offinancing, framework and models in these two banking environments and searchout the speculative behavior of Islamic Banking. From the hedging perspective,Islamic banks speculate in some cases with hedging instrument of conventionalbanking. This is one of the strategy for facing challenges and continue to grow.
Islamic banks should think about the rules and regulations that Sharia and conventionalbanking used is different. Islamic banking have a responsibility for socialdevelopment and support economic growth by using production and trade. So that,they might use some derivative instruments that can minimize risk and also cangenerate income at the same time. Jawadi and Louhichi (2014) studied that the performance ofIslamic finance regarding that of conventional finance over the last decade. Duringthe current financial crisis, conventional finance is more ineffective andrisky, at the meanwhile someone has expected that Islamic finance innovations canenable investors getting higher profit and lower risk. According to the research,they realize that conventional financial products gains higher returns than Islamicfinance over the first sub period from 2000 to 2006. But, they also notice thatthe Islamic finance outperforms classical finance during financial crisis andturbulent time from 2006- 2011. Those results converge to indicate a well and highperformance level for Islamic financial indexes for the three regions underconsideration.
Besides that, It also indicates that the Islamic fundsoutperform conventional financial products during the turbulent time.