After enjoying many years of continuous growth, the future of Islamic finance industry faces new challenging dynamics in the form of slowing growth combined with sharply decreasing profitability. Meanwhile, the practice of Islamic finance continues to deviate from the theoretical and socio-economic premises upon which the industry was built, thus, causing significant damage to its credibility and raising questions on its very raison d’être. This paper argues that such deviation and erosion of credibility was inevitable due to the flawed methodology adopted by the industry, namely, building institutions as pure imitations that provide the optimal legal form capable of mimicking the function and substance of existing conventional financial institutions. This approach was motivated by the need of Islamic financial institutions to be as competitive as possible with their conventional counterparts and to offer an immediate alternative or replacement for the conventional financial system. The Islamicization of conventional financial institutions and instruments proved successful in attracting investments and securing fast growth but that was only achieved at the cost of compromises of principles and deviations from the ethical and socio-economic principles which were presented as the main justifications for offering Islamic financial solutions. The paper further argues that Islamic finance should have focused on offering niche and innovative solutions to some of known challenges of conventional banking and finance, such as community banking, micro finance and SME finance. Rather than competing head on with conventional institutions, Islamic finance should focus on complementing the conventional system in such areas. The paper concludes that in order to bring consistency and coherence between the theory and practice of Islamic finance, a new methodology concentrating on the main problems that conventional banks and institutions have regularly failed to address should be adopted.