Financial institutions, Islamic or otherwise, play two indispensable roles in financial systems. The first role is providing support for various financial markets. For instance, exchanges of various types are institutions that facilitate the functioning of markets, by setting rules of trading and providing clearinghouse and margin logistical support. Those services alleviate many of the information asymmetries between buyers and sellers that might lead to market failures. The second role that financial institutions perform is providing financial solutions where market failures exist despite the existence of market-supporting institutions. For instance, although any company should – in theory – be able to access debt markets by issuing bonds, commercial paper, and the like, transactions costs may be disproportionately high, and investor information may be extremely lacking. In such cases, the terms at which a small investor can borrow from the market may be prohibitive.

In contrast, a bank that retains professional staff specializing in the assessment of loan applications or business plans, for example, can provide loans to investors with limited market experience. The same argument applies even more forcefully to consumer financing, since consumers suffer the additional disadvantage of lacking a legal structure that would allow them to borrow directly from the market. Banks solve the information asymmetries that lead to market failure by capitalizing on economies of scale in processing information on creditworthiness, business plan prospects, and the like.