financing, structured financial derivatives, and private equity, retail banking and islamic mortgages. • develop suitable frameworks and applications of pls - based products. at present, the share of equity investment in if ranges from 0 to 24 % of the banking books of islamic banks. pls modalities like mudaraba and musharaka, based on equity partnership arrangements, offer interesting options for innovation. however, weaknesses in legal, regulatory and policy frameworks have impeded their growth. some of the constraints of its effective application 5 include ( i ) equity holders and investors ’ aversion to risk, given the uncertainties over return in pls arrangements, ( ii ) absence of effective property rights in most countries, ( iii ) long term nature of pls financing and ( iv ) higher taxation, compared to interest income, on equity transactions underlying pls arrangements. nevertheless, promoting pls arrangements will not only offer new products but will also address the serious mismatch of assets and liabilities which has aggravated due to the heavy reliance of ifis on short - term, low profit and fixed income assets. 15. in conclusion, it has to be recognized that if services have been transformed from being a peripheral activity to a sizeable industry which is attracting global interest. evidence and arguments presented above make the case that financial globalization will foster if and given the inherent features and richness of islamic principles, modalities and products ’ growth in if will be beneficial for supporting the process of regional and global financial deepening. although currently the size of if is small relative to the global financial system, it has promising growth prospects. well - developed and integrated islamic money, capital, and foreign exchange markets will not only be beneficial for borrowers and institutional investors, they can also further enhance the stability of if institutions, providing them with improved portfolio, liquidity and risk management tools. the challenge for the industry is to consolidate “ lack of profit loss sharing in islamic banking ; management and control imbalances ”, humayon dar and john r. presley ( 2001 ). itself to be able to better compete with global players through achieving scale, efficiency and cost effectiveness in addition to rapidly building its capacities to standardize regulation and supervision, and accounting practices, while strengthening the governance of the industry.

from the unfolding events. 5. good news is that the islamic finance ( if ) industry has generally remained insulated from the recent episode in financial markets. this is because islamic banks ’ transactions are backed by real economic assets and risk management, benefiting from the application of and compliance with shariah principles and guidelines, wherein the banks and investors have to share the profit and losses in accordance with the risks taken. while in conventional finance, risk - free capital encouraged over - leveraging and overexposures by transferring transactions to off - balance sheets conduits. if services drive their inherent strengths from the shariah guidelines and principles. notwithstanding, if services, like all businesses, could be impacted if the global slowdown deepens. 6. abstracting from the current scenario which is still unfolding, broad evidence confirms that financial globalization, with adequate safeguards, promotes economic growth and development. financial globalization has the potential to promote and reinforce if by ensuring its conformity with conventional finance by fostering newer and better linkages with the regional and global financial markets. if in turn can reinforce and support globalization by bringing to it financial innovation and stability, provided it is properly nurtured and developed in conformity with the internationally well - accepted and tested financial sector prudential and regulatory frameworks. in order to achieve a deeper and sustainable impact, if would benefit by aligning and positioning itself in a way that it takes full advantage of financial globalization. 7. notwithstanding, it has to be recognized that financial globalization can have unintended negative consequences. however, empirical evidence confirms that this happens under specific conditions. without going into an elaborate debate on this subject, suffice to point out that this happens in cases where the financial systems lack diversification or are under - or weakly regulated, and when financial globalization marginalizes the developing markets and people. if if is positioned to address these areas upfront, it will in fact help reinforce and augment conventional finance with its inherent principles and guidelines that place emphasis on supporting economic transactions, avoiding speculation and depending on proper alignment of the risk - reward equation. 8. given these considerations, there are ways in which if can benefit and enrich the process of financial globalization so as to mitigate or reduce its negative consequences. for instance, • if ’ s potential to promote different types of risk - sharing methods, supported by emphasis on equity and asset backed financing, can help promote risk diversification and mitigation. • if ’