COMCEC Financial Outlook 2018
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2. ISLAMIC FINANCE
Islam covers all aspect of human life and brings rules and injunctions, which are derived from
the ontological sources of Islam, namely Quran, and Sunnah. So, Islamic economics has its own
vision and covers all economic aspects of life through its principles and value system in both
micro and macro levels.
Islamic financial institutions are one of the main components and operational part of the Islamic
economic system. Islamic finance is becoming one of the most significant aspects of the modern
global financial system. Although the Islamic finance industry has grown substantially, it has
mostly grown in a limited number of regions. There is a considerable amount of opportunity for
the industry to grow further by increasing public awareness.
Based on the Vision and with the guiding Core Principles of the COMCEC Strategy, finance
especially Islamic finance has been an important field of study for the Financial Cooperation
Working Group that brings together the relevant experts from the Member Countries regularly
to produce knowledge, share experiences and best practices and develop a shared
understanding. In this context, the Financial Cooperation Working Group prepares analytical
reports on the Islamic finance industry.
Furthermore, during the period 2019-2021, the Financial Cooperation Working group will also
continue to focus on elaborate on different aspects of Islamic Finance.
2.1 Concept and the Brief Modern History of Islamic Finance
Islamic finance is based on, basically, two injunctions which are a prohibition of riba and gharar.
The former one is broader than the current interest, and it is expropriation of the wealth of
either borrower or lender19. Prohibition gharar is another principle of Islamic finance which
“arises in a contract when the consequences of a transaction are not clear, and there is
uncertainty about whether a transaction will take place.” Operations of Islamic financial
institutions must be free from these two, riba and gharar. Also, they must avoid non-halal trade
businesses in terms of both intermediations and invest, such as alcohol.
The Islamic Finance Industry 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.
The Industry has gained 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 2008. Since the core pillars of Islamic finance require a ban on speculation,
asset-backing principle, risk-sharing. The industry has proved its soundness and maturity
19 M. Shahid Ebrahim et al., “Can Islamic injunctions indemnify the structural flaws of securitized debt?,” Journal of Corporate
Finance 37 (2016): 271–286.