Financial Outlook of the OIC Member Countries 2017
30
3.1 CONCEPT AND THE BRIEF MODERN HISTORY OF ISLAMIC
FINANCE
While the core concepts of Islamic finance date back to the birth of Islam, the modern Islamic
finance has emerged as a modern phenomenon since 1960s. Since then it has gained ground in
global markets and emerged as an alternative and ethical form of finance against the
conventional one. Over the years, the market and the development trend of the industry have
been shaped by certain phenomena including deregulation, increased openness of the markets,
technological change, global and regional socio-economic developments etc.
The Industry has gained a new momentum with the onset of the new millennia. The efforts
have been coordinated by the global and regional communities to increase the awareness of
the world towards this new ethical form of finance. The efforts have been shaped around to
provide the recognition and acceptance of Islamic finance by the mainstream drivers of the
industry. In order for this, the standardization efforts paved the way for establishing
international standard setting bodies at the global scale and regulation and legal environment
created by local authorities. Another historic juncture for the development of the industry has
been the global financial crisis of 2009. Since the core pillars of Islamic finance require ban on
speculation, asset-backing principle, risk-sharing etc., the industry has proved its soundness
and maturity against the financial crises. Therefore, Islamic finance has been recognized as
part of global finance with its growing customer base, asset size, diversified instruments, and
geographical spread.
Islamic finance has emerged as an effective tool for financing development worldwide,
including in non-Muslim countries. Major financial markets are discovering solid evidence that
Islamic finance has already been mainstreamed within the global financial system. The Islamic
finance industry has expanded rapidly over the past decade, growing at 10-12% annually and
total assets are estimated at roughly US$2 trillion, covering bank and non-bank financial
institutions, capital markets, money markets and insurance (“Takaful”). In many majority
Muslim countries, Islamic banking assets have been growing faster than conventional banking
assets. There has also been a surge of interest in Islamic finance from non-Muslim countries
such as the UK, Luxembourg, South Africa, and Hong Kong. Islamic finance is equity-based,
asset-backed, ethical, sustainable, environmentally- and socially-responsible finance. It
promotes risk sharing, connects the financial sector with the real economy, and emphasizes
financial inclusion and social welfare. 35
The growing market shares and rising domestic systemic importance of Islamic finance
underscores the importance of developing strong regulatory frameworks for prudential
regulation and supervision in Islamic finance jurisdictions.
35 World Bank, Islamic Finance Brief