Islamic Finance in the Global Economy

The world financial markets continue to test the interconnectedness of global and domestic banks with international economic and political agendas. Islamic financial institutions (IFIs), by contrast, are demonstrating resilience as the world events continue to reshape the landscape of global financial services. The test, however, will be how Islamic finance (IF) industry prepares itself for the opportunities and challenges thrown up by the inevitable, rapidly changing global economy. In its recent special issue (published in November 2013) on ‘Top Islamic Financial Institutions’, The Banker reported that the IF industry has witnessed a rise in its assets for the seventh consecutive year since it began collecting data in 2006, climbing up from USD 1.2 trillion in 2012 to USD 1.3 trillion in 2013, which amounts to 8.7% annual growth. It is also revealed that, while the growth of the industry in 2013 has seen a slowdown from 20.7% in 2012 to 8.7%, the compound annual growth rate since 2006 still remains considerably healthy at 16 %. Such staggering growth and development prospects have accelerated the eastward shift in the world’s economic “centre of gravity.” Economies of the Middle East and Asia – including key Muslim member countries – are seen as increasingly central. The Group of 20 – a summit that plays a key role in international economic policy – now includes three IDB and OIC member countries (Indonesia, Saudi Arabia, and Turkey).