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

The study investigates the challenges of executing Musharaka, a partnership-based contract in the Islamic banks in Bahrain, aiming at how well it connects with the principles of Maqasid al-Shariah. It also examines similar types of applications used in Pakistan and Oman. Using qualitative research methods, interviews were conducted with ten professionals, including Islamic bankers with more than 15 years of experience and risk professionals who understand the structure of the Musharaka contracts. NVIVO software has been used to analyze the data. Findings demonstrate that the lower embracing of Musharaka contracts is because of challenges like difficulty monitoring, high risk, and lack of awareness among customers and staff. Furthermore, Musharaka contracts have higher levels of risk than other financing techniques. This makes them less favorable to the banks. Neglecting these obstacles, the study demonstrates that Musharaka, with its profit and loss sharing structure, better completes Maqasid al-Shariah's objectives than other contracts such as Murabaha. The study emphasizes the need for policies to improve awareness and decrease the risk of these contracts to improve their adoption. These findings can notify the decision-makers in the Islamic banking sector in Bahrain to execute strategies that improve the usage of Musharaka contracts while connecting with the financial principles of Islam. Moreover, the research offers insights into the implications of applying these contracts in different nations. It provides recommendations to overcome the challenges specific to the banking sector of Bahrain. This study is worthy of both banking professionals and policymakers as it will help to find the extent of Islamic finance practices.