Islamic finance or Shari’ah compliant financing (SCF) is one of the fastest growing segments of the global financial system with an estimated compound annual growth rate of 17% since 2009. As of 2015, the industry’s global assets have reached at least $1.9 trillion. The industry’s continuous expansion resulted in Islamic finance reaching systemic significance in a number of countries in Asia, including Brunei, Bangladesh, and Malaysia; these are countries where Islamic finance has achieved at least 15% market share in the domestic banking sector. Countries that do not have a predominantly Muslim population are also beginning to open their doors to Islamic finance. Luxembourg, Hong Kong, China, United Kingdom and South Africa have debuted sovereign sukuks (Islamic trust certificates, similar to conventional bonds), with all issuances being at least twice oversubscribed, demonstrating a strong demand for SCF globally.
Significantly, ADB has 14 member countries that have a majority Muslim population and has 5 of the 10 countries with the biggest Muslim population globally. Asia requires infrastructure investments of an estimate of $747 billion a year to sustain its growth trajectory. Given the demographic composition of its member countries and realizing the region’s vast investment needs, ADB recognizes the potential role of Islamic finance in promoting inclusive growth and achieving sustainable development in the region, through funding infrastructure and green and ethical investments.
Asia undoubtedly stands at the forefront of significant developments in Islamic finance and ADB will continue playing a major role, including:
- assisting the development of regulatory and supervisory frameworks and the use of best international standards by assisting through technical assistance (TA) and cooperation with standard-setting organizations such as Islamic Financial Services Board;
- advising and assisting, through TAs and loans, on capital market developments for financial institutions; and
- working with developing member countries and cofinanciers toward financial innovation.
- The Islamic finance sector continues to grow, expanding to new jurisdictions and maintaining momentum in countries where it has a well-established presence. A number of developing member countries (DMCs) within the Central West Asia, South Asia and Southeast Asia regions have begun implementing legislative and regulatory initiatives to allow the introduction of Islamic financial products and instruments. Some DMCs are aiming to establish themselves as Islamic financial hubs within their regions. Islamic finance is proving to be an increasingly relevant sector as can be derived from the increasing market share of Islamic finance in the domestic banking sectors in key DMCs. Within the backdrop of these developments, ADB has provided critical support to its DMCs in developing Islamic finance within the region.
The following provides a preview of the Islamic finance sector in select DMCs and ADB’s projects involving Islamic finance in these countries.
Islamic Finance Issues
ADB recognizes the potential role of the Islamic financial sector in supporting ADB’s agenda of achieving inclusive growth, sustainable development and financial stability within the region. Islamic finance provides financial services for all segments of the population and can help increase financial inclusion. Islamic finance also serves as an alternative source for funding infrastructure and as a means of diversifying funding and risk exposures of investors.
To realize this potential, ADB has worked with its developing member countries in building or strengthening their Islamic financial sector and addressing challenges and needs unique to the industry. Read more below on how Islamic finance supports ADB’s strategic agenda and ADB’s assistance to its developing member countries.
- Link : https://www.adb.org/what-we-do/sectors/finance/islamic-finance
