Islamic Finance Revisited: Conceptual and Analytical Issues from the Perspective of Conventional Economics

Islamic finance has come of age. Islamic banking and finance have been growing at a very fast rate, despite apparent serious setbacks (such as interruption of payments in Abu Dhabi in 2009, the Great Recession in Western countries between 2008 and 2010, and the recent turmoil in Middle Eastern countries). The industry, which was valued at a mere $150 million in the 1990s, has increased to nearly $1 trillion. Although it is still a niche market and its share in world finance is quite small, it is nevertheless poised for further rapid expansion as economic development proceeds, particularly in the Muslim world. The current composition of Islamic finance consists of roughly $800 billion in Islamic banking funds; $100 billion in the sukuk (Islamic bonds), and another $100 billion in takaful (Islamic insurance), Sheng (2011) estimates. According to data recently released by Standard & Poor’s, in the first quarter of 2011, $32.4 billon of Islamic bonds (sukuk), were issued, compared with $51.2 billion raised in all of 2010. The engine of the global market up to now has been Malaysia, which accounted for 58 percent of funds raised in the first quarter.