According to Quran introduction of Prophet Muhammad (PBH) has been described as, A teacher who educates about his look and knowledge (Hikmat). Thus achievement of religious knowledge is essential for every Muslim. In this perspective education in Islam have been every important. Islam has inducted that educational revolution which has resulted as the acquiring education for every Muslim. Starting from educationist to different school of thought in the form of Madersa’s to proper education is a bright aspect in the tradition of Muslim history. Religious institutions have continued this tradition which has kept the tradition of deen alive. However with the global change and speed of time has created a big challenge for religious institutions. To face this challenge is the need of time. This challenged Madersa’s, their curriculum, methodology depend on basic principles on which Islamic education system has been constructed. In this article in the historical background tradition of Muslim history has been analyzed and with these important challenges have been pointed out which the modern education system is facing along with it solutions of some problems have also been suggested.