These are the top 9 countries for Islamic finance

Tomas Hirst
Editorial director and co-founder, Pieria magazine
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale

What is Islamic finance?

Islamic finance is the provision of financial services that are compliant with Sharia law. According to the IMF’s definition, Sharia does not allow the payment or receipt of interest (riba), gambling (maysir) or excessive uncertainty (gharar). In practice, this means that common investing techniques such as short selling (betting against a security) are banned and all transactions must demonstrate a real economic purpose.

The two most important parts of the Islamic finance world are banking services and the Sukuk market – the Islamic equivalent of the bond market. Between them they account for around 95% of the $1.8 trillion worth of Islamic finance assets (end 2013).

Unlike traditional banks, Islamic banks’ funding comes from deposits (on which they pay no interest) and profit-sharing investment accounts with a return decided by the bank’s profit. Equally, while conventional bonds reflect a commitment by the borrower to repay the principle amount plus an agreed interest rate, Sukuk are structured so that the returns are linked to the underlying asset, with the lender receiving a claim on the asset in return (rather like asset-backed securities).

Which are the key countries involved?

The most significant players remain the GCC countries, which account for the vast majority of assets. That said, the model is also making headway in countries such as Malaysia, Indonesia, Turkey and Pakistan.


Indeed, some of the countries outside the GCC are experiencing the fastest growth. Below are the year-on-year growth rates of assets (in local currency terms) of conventional banking v Islamic finance between 2009-2013 (via E&Y):

www_ey_com_Publication_vwLUAssets_EY-world-islamic-banking-competitiveness-report-2014-15__FILE_EY-world-islamic-banking-competitiveness-report-2014-15_pdf 2

How big is the industry?

According to Ernst & Young, total Islamic finance assets of commercial banks rose 17% between 2009 and 2013, hitting $778 billion. Of that, Gulf Cooperation Council (GCC) countries account for around $517 billion, ASEAN countries for $160 billion and South Asia for $23 billion; with the rest of the world (especially Turkey) making up the remaining $78 billion.


Although the pace of growth has been impressive, the share of Islamic financial assets remains only a small fraction of global financial assets (less than 1%). However, its double-digit growth is comfortably outpacing that of conventional banking and it is increasing its reach with Sukuk issuance having taken place in Africa, South Asia and Europe.

Unfortunately, while the industry is gaining ground, its profitability has so far lagged behind that of comparable conventional banking institutions. Average return on equity in leading Islamic finance banks between 2009 and 2013 was 11.9%, against a 14.5% return from traditional banks.

E&Y puts the gap down to legacy cost structures within participating banks, rather than the inherent lower profitability of these types of businesses. The bad news is that these will be difficult barriers to overcome, that will require “depoliticizing … Islamic finance” and overcoming the “deep distrust of the banking sector”.

The IMF also warns of the need to ensure an appropriate regulatory regime surrounding these nascent institutions due to the risks related to the business model. These include managing liquidity risk and dealing with the complexity of transactions and corporate structures required for Sukuk issuance.

There is good news, however: if these are achieved, Islamic finance should continue its strong growth of recent years and the profit gap with conventional banking should narrow, if not disappear altogether.

Have you also read?
5 ways technology is transforming finance
How blended finance can help sustainable development
Forum report: Future of Financial Services

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Tomas Hirst is editorial director and co-founder of Pieria magazine and was previously commissioning editor, digital content at the World Economic Forum. His work has been featured in The Times, the Guardian, Prospect Magazine, the Financial Times and Quartz.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

About Us



Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum