Abstract
The underdevelopment in many Arab countries presents many expansion opportunities for Islamic finance. Islamic economics aim at achieving economic justice 'Adal Allah' and fair distribution 'Musawah'. It is argued that these objectives cannot be achieved unless an active role is taken by Islamic financial institutions. Risk sharing principles underlying Islamic finance should be extended to the very early stages of start-ups (planning and legal stages). The Islamic world is blessed by having wealth seeking Sharia compliant investments on one hand, and on the other hand, many young and educated people who are looking for finance to start up their lives. This is a clear example of an economic coordination failure where a medium had to exist to bridge the gap between these two groups. A new function for Islamic financial institutions is suggested which is to identify coordination failures and to take an active role in addressing these coordination failures.
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