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- Shariah-compliant finance drives ethical investment, financial inclusion, and sustainable growth across global markets
Islamic banking, rooted in Shariah principles that prohibit interest (riba) while promoting risk-sharing, ethical investments, and asset-backed financing, has transformed from a niche system into a global financial powerhouse. According to the LSEG Islamic Finance Development Report 2025, global Islamic finance assets reached US$5.985 trillion in 2024, up 21% from US$4.963 trillion in 2023. This growth outpaces many conventional financial sectors, driven by regulatory reforms, digital innovation, and increasing demand for sustainable and values-aligned financial products. Projections suggest assets could climb to US$9.719 trillion by 2029, growing at a CAGR of 10%. Islamic banking, the dominant segment, accounted for 72% of these assets, totaling US$4.318 trillion in 2024.
Pakistan’s role
Pakistan, a key market, has Islamic banking assets exceeding PKR 11.5 trillion (US$41 billion) as of March 2025, representing a 21.1% share of the domestic banking market. Growth reflects trends across Muslim-majority countries, where Islamic finance aligns with cultural and religious values, supports financial inclusion, and promotes economic diversification. The sector’s momentum extends beyond Pakistan, dominating the GCC, Iran, and Southeast Asia, while gaining traction in non-Muslim-majority nations due to ethical appeal and regulatory adaptations.
Historical overview
Modern Islamic banking emerged in the mid-20th century to align finance with Islamic principles. The first experimental savings bank, Mit Ghamr in Egypt (1963), focused on profit-sharing. This led to Dubai Islamic Bank (1975), the world’s first full-fledged Islamic commercial bank. By the 1980s, Iran and Sudan adopted fully Islamic banking systems, while Malaysia and the GCC offered Islamic windows in conventional banks. Globalization in the 1990s, promoted by institutions like the Islamic Development Bank (IsDB) and regulatory bodies AAOIFI and IFSB, established standardization.
The 2008 financial crisis highlighted Islamic banking’s stability, as asset-backed models avoided toxic debt. Post-crisis growth accelerated, with assets doubling every four years on average. By 2010, global Islamic assets reached US$1 trillion, nearing US$6 trillion by 2024. Today, over 2,255 Islamic financial institutions operate worldwide, offering products such as murabaha (cost-plus financing), musharaka (partnership), and sukuk (Islamic bonds).
Islamic banking in Muslim-majority countries
Muslim-majority nations, home to 1.8 billion people, hold over 95% of global Sharia-compliant assets. These countries hosted 681 Islamic banks and windows in 2024, with assets growing 21% YoY. Key regions include the GCC (53% of assets), Southeast Asia (21%), and MENA excluding GCC (17%).
GCC: Dominance and diversification
The GCC — Saudi Arabia, UAE, Kuwait, Qatar, Bahrain, Oman — leads with US$1.66 trillion in Islamic assets, propelled by oil wealth, Vision 2030 reforms, and high penetration.
| Country | Islamic Banking Assets (US$ bn, 2024) | Total Islamic Finance Assets (US$ bn, 2024) | Estimated User Base / Penetration | Key Institutions & Notes |
|---|---|---|---|---|
| Iran | 913 | 761 | 85M / 100% | Full Islamization; sanctions challenge. |
| Saudi Arabia | 306 | 460 | 20M / 75% | Al Rajhi Bank; Vision 2030. |
| Bangladesh | 312 | N/A | 25M / 15-20% | SME focus; remittances. |
| Malaysia | 180 | 198 | 15M / 46% | Innovation hub; 30% non-Muslims. |
| UAE | 153 | 192 | 5M / 22.7% | DIB; targets US$697bn by 2031. |
| Kuwait | 88 | 179 | 3M / 51% | KFH dominant. |
| Türkiye | 59 | 77 | 10M / 10% | Targets 15% by 2025. |
| Qatar | 50 | 127 | 2M / 28.6% | Infrastructure sukuk. |
| Indonesia | 59 | 2,249 | 12M digital / 8% | BSI merger; rapid growth. |
| Bahrain | 50 | 139 | 1M / 16.1% | Regulatory hub. |
| Sources: LSEG 2025; S&P Global; user estimates from penetration and population data. | ||||
Saudi Arabia: US$306 billion; 75% market share; Al Rajhi Bank serves 20 million customers. Growth 15–17% annually through 2029.
UAE: US$153 billion; 22.7% share; Dubai Islamic Bank leads 5 million users. Focus on fintech and green sukuk.
Kuwait: US$88 billion; 51% penetration; Kuwait Finance House serves 3 million users.
Qatar: US$50 billion; 28.6% share; Qatar Islamic Bank supports infrastructure sukuk.
Bahrain: US$50 billion; 16.1% share; hub for AAOIFI, 1 million users.
Oman: US$20 billion; 16.6% penetration; emerging user base 500,000.
GCC challenges include hydrocarbon dependence; opportunities lie in diversification via ESG sukuk (US$61.5 billion globally in 2024).
Southeast Asia: Innovation and inclusion
Malaysia: US$180 billion; 46% of total financing; 15 million users, including 30% non-Muslims; innovations like Value-Based Intermediation have mobilized US$154 billion in sustainable initiatives.
Indonesia: US$59 billion; 8% share; Bank Syariah Indonesia serves 12 million digital users; retail sukuk attracts 400,000+ investors.
Brunei: US$10 billion; 15% penetration; 200,000 users.
Fintech adoption drives inclusion; Indonesia alone attracted US$1.2 billion in Islamic fintech investments since 2020.
Other notable Muslim-majority countries:
Iran: Fully Islamic; US$913 billion assets; 100% penetration.
Türkiye: US$59 billion; 10 million users; growth targeted to 15% by 2025.
Bangladesh: US$312 billion; 25 million users; SME focus.
Sudan: US$20 billion; 40 million users; fully Islamic system.
Islamic Banking in non-Muslim countries
| Country | Islamic Finance Assets (US$ bn, recent) | Estimated User Base / Penetration | Key Notes |
|---|---|---|---|
| UK | 42.6 (2023) | 2M / 6% among Muslims | Europe’s hub; sovereign sukuk. |
| Luxembourg | 20 | Institutional | Eurozone sukuk pioneer. |
| Singapore | 15 | 500K | Tax-neutral; Asia gateway. |
| South Africa | 10 | 1M / 2% | Sukuk re-entry 2023. |
| US | 10-15 | 3.5M Muslims | Mortgages dominant. |
| Australia | 5 | 800K Muslims | Community financing. |
| Hong Kong | 5 | Institutional | China gateway. |
| Philippines | 2 | 6M Muslims / 78% willingness | 2024-2028 roadmap. |
| Russia | 1-2 | 20M Muslims | Regional pilots. |
| Uganda | 1 | 14% population | New licenses 2024. |
| Sources: LSEG; Statista; surveys. | |||
Ethical finance and risk-sharing attract non-Muslim markets. Assets reached US$95.2 billion in 2024, with 84+ non-OIC countries and 1,000+ institutions engaging.
Europe: Europe holds US$85 billion in assets, led by the UK and Luxembourg.
UK: US$42.6 billion; Al Rayan Bank serves 100,000+; 2 million users; sovereign sukuk since 2014.
Luxembourg: US$20 billion; funds-focused; Eurozone sovereign sukuk pioneer.
Asia-Pacific & Others:
Singapore: US$15 billion; sukuk-focused; 500,000 users.
Australia: US$5 billion; 800,000 Muslims.
US: US$10–15 billion; home financing; 3.5 million users.
South Africa: US$10 billion; 1 million users; sukuk re-entry 2023.
Challenges include regulatory harmonization, standardization of fatwas, liquidity tools, and awareness. Opportunities include fintech, digital adoption, ESG sukuk, and cross-border sukuk.
Global trends & implications for Pakistan and the Gulf
Islamic banking growth mirrors sustainable finance shifts; ESG sukuk at US$61.5 billion and fintech adoption increase financial access. Pakistan can leverage Gulf sukuk for CPEC projects, channeling remittances (~US$30 billion annually) through Islamic channels. Joint ventures like Meezan Bank-GCC partnerships enhance fintech and trade links. Gulf diversification under Vision 2030 aligns with Pakistan’s inclusion goals, potentially unlocking US$1 trillion in OIC climate finance by 2050.
Cybersecurity remains the top risk, but cross-border sukuk, halal trade, and AI-enhanced compliance present opportunities.
Islamic banking, with US$4.3 trillion in assets and billions of users, transcends borders, offering ethical finance amidst global volatility. For Pakistan and the Gulf, it represents a pathway to resilient, inclusive growth. Assets approaching US$10 trillion by 2030 underscore the importance of collaboration, innovation, and sustainable development in the Islamic finance ecosystem.
The author, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at sir.nazir.shaikh@gmail.com
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