In the past forty years, the Islamic finance industry (IFI) has experienced huge expansion and developed from a niche industry to a viable alternative for global financial architecture. However, IFI still uses conventional finance benchmarks, such as lIBOr, to determine its own cost of funds, and hence its return to financial investments. At the present time, IFI uses the interest rate as the benchmark for Islamic finance products. Profit rates charged by IFIs are basically replicas of the market interest rates. This practice, although discouraged, is basically accepted in Islamic finance as the interest rate is used merely as a benchmark only. Nevertheless, any reference to the interest rate should be minimised, if not eliminated, as much as possible. Therefore the need for providing an Islamic pricing benchmark for IFI cannot be over-emphasised.
