Muslim Majorities Development: Islamic Finance and Trade Between Muslim Countries

Summary

Islamic banking, sukuk markets and intra-OIC trade finance keep expanding, but scholars and regulators flag products that mimic conventional loans and Malaysian housing failures that have eroded trust.

What it argues

1. OIC trade cooperation push

   COMCEC's secretary-general reports track OIC coordination on agriculture, food security and poverty programmes across 57 member states. The COMCEC ministerial session reaffirmed a target of 25% intra-OIC trade, commending ITFC's trade-finance role in reaching it. OIC bodies keep institutionalising economic cooperation among Muslim-majority states as a declared goal.

2. Sukuk market expansion

   Global sukuk issuance reached $205bn in 2024 and outstanding sukuk hit $902.8bn, led by Bahrain, Malaysia, Saudi Arabia, the UAE and Indonesia, per IIFM data. IsDB raised $1.2bn in a June 2025 issuance, passing $50bn in cumulative sukuk since 2003; IFSB counts total Islamic finance assets at $3.88 trillion in 2024, rising to $4.4 trillion in 2025. Shariah-compliant capital markets keep growing, with Gulf and Southeast Asian issuers dominant.

3. Intra-OIC trade finance

   ITFC reports cumulative Shariah-compliant trade finance approvals of $83bn and disbursements of $70bn to OIC member countries since 2008. In 2024 it financed food imports reaching over 30 million households and channelled $1.2bn to SMEs through partner banks. A dedicated Islamic trade-finance arm keeps capital and commerce flowing between OIC economies.

4. Climate-linked Islamic finance

   A joint World Bank–Islamic Development Bank report urges green sukuk, takaful and waqf to fund climate-resilient development across the OIC's 57 member countries. It frames Islamic finance's risk-sharing and asset-backing principles as suited to greening halal industry value chains. Climate strategy is being built on existing Islamic-finance instruments rather than separate new ones.

5. Sharia home-financing disputes

   The Conversation reports Malaysia's Bayʿ Bithaman al-Ājil and tawarruq housing contracts economically resemble conventional loans, letting banks lock in fixed returns while buyers bear project risk. Justice Taqi Usmani and the article's authors say such structures breach the risk-sharing principle al-ghunm bi al-ghurm and the broader maqāṣid al-sharīʿah. What counts as genuinely Sharia-compliant financing remains contested among scholars and practitioners.

6. Regulatory gaps on hybrid risk

   IFSB's 2026 stability report identifies 'hybrid risks' where Islamic banking products mimic conventional bank structures beyond what prudential rules capture. It notes an IMF paper raised the same concern in 2017, and that jurisdictions remain divided between letting such products proliferate and restricting them. Regulators acknowledge the industry lacks settled rules for products that blur the line with conventional banking.

7. Trust in Islamic finance erodes

   Malaysian government findings cited by The Conversation show 15,553 homebuyers affected by 107 abandoned housing projects partly financed through Sharia-labelled products. The article says this has eroded public trust in Islamic home financing and prompted calls for an independent consumer ombudsperson and third-party Shariah audits. Failures in Sharia-compliant housing finance carry a social cost in trust, not just a financial one.