10.1 Overview of the Global Islamic Finance Industry

Overview of the Global Islamic Finance Industry

Quick Answer: Islamic finance is now a global industry of about USD 4.4 trillion in assets, according to the IFSB's 2026 stability report (data to Q3 2025). Islamic banking makes up about 69% of that total, and sukuk outstanding have passed USD 1 trillion. Islamic funds (about 4%) and takaful (about 1.6%) are much smaller. The industry is concentrated in the GCC and East Asia and the Pacific, which includes Malaysia. It is supported by international institutions such as AAOIFI, the IFSB, the IIFM, and the IILM.

The AQIF description of Module 5 notes that the architecture's strength lies in giving customers options, but that it "still needs refinement and enhancement" to be as competitive as the conventional system. This section provides the big picture before the detailed sections on banking (10.2), takaful (10.3), the capital market (11.1–11.2) and wealth management (11.3).

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1. How the Modern Industry Developed

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2. Components of the Islamic Finance Architecture

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Each component depends on the others. Banks need sukuk and money-market instruments for liquidity. Takaful operators need Shariah-compliant assets to invest in. Wealth management uses funds, takaful and estate-planning tools. And all of them depend on Shariah governance and regulation.

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3. Size, Composition and Geography (IFSB, 2026)

The IFSB's Islamic Financial Services Industry Stability Report 2026 reported:

Islamic banking's share of each domestic banking system (2025Q3, IFSB):

• 100% in Iran, Sudan and Somalia;
• about 75.8% in Saudi Arabia, 61.3% in Brunei, and 58.2% in Kuwait;
• about 34.3% in Malaysia.

The IFSB counts 16 jurisdictions where Islamic banking is systemically important, with more than a 15% share.

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4. International Infrastructure Institutions

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5. Malaysia's Ecosystem

Malaysia is often described as having one of the most comprehensive Islamic finance ecosystems:

• Regulators: Bank Negara Malaysia (banking, takaful, money market) and the Securities Commission (capital market), each with a statutory SAC.
• Law: IFSA 2013 and the Central Bank of Malaysia Act 2009.
• Markets: Bursa Malaysia, with Shariah-compliant equities and the Bursa Suq Al-Sila' commodity platform; the IIMM; and the world's largest local-currency sukuk market.
• Safety net and redress: PIDM deposit and takaful benefit protection, and the Financial Markets Ombudsman Service.
• Talent and research: IBFIM, INCEIF (founded by BNM), ISRA (the International Shariah Research Academy for Islamic Finance), and university programmes.
• Dispute resolution: the civil courts' Muamalat bench and the AIAC i-Arbitration Rules.

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6. Issues That Still Need Refinement

The IFSB and other observers highlight several structural issues:

• Concentration: most assets sit in banking and in a few markets, so capital-market and takaful development lags.
• Debt-based dominance: profit-and-loss sharing remains a small share of financing.
• Liquidity management: there are still limited Shariah-compliant liquidity instruments and central bank facilities in many markets, despite the IILM and national systems such as Malaysia's IIMM.
• Secondary markets: sukuk often trade with wider bid-ask spreads and less liquidity than conventional bonds.
• Takaful pressures: rising claims and, in some markets, repeated qard support for deficit risk funds.
• Standardisation: divergent Shariah interpretations across jurisdictions.
• Governance and resilience: supervisory capacity, crisis management and resolution frameworks tailored to Islamic finance remain underdeveloped in many jurisdictions.
• New frontiers: growth in Africa and Central Asia, digital and fintech business models, and sustainability-linked products such as green and SRI sukuk.

These issues reappear throughout chapters 10 and 11 and are typical material for AQIF questions on the strengths and weaknesses of the current architecture.