Islamic banking, a system adhering to Sharia principles, has experienced remarkable growth in recent years. Between 2009 and 2013, Sharia-compliant banking expanded at an impressive annual rate of 17.6%, outpacing the growth of conventional banking. Despite this rapid growth, the size of the Islamic banking system remains comparatively smaller than its conventional counterpart, standing at an estimated $2 trillion. However, it constitutes only 1% of the total world banking sector. Despite its relatively smaller size, Islamic banking has a widespread presence, with Islamic financial institutions operating in 105 countries as of 2010.
This growth in Islamic banking can be attributed to several factors. Firstly, there is a growing global Muslim population seeking financial services that align with their religious beliefs. Additionally, increased awareness and acceptance of Islamic finance principles among non-Muslims have contributed to its expansion. Moreover, many governments and financial institutions have recognized the potential of Islamic banking and have taken steps to support its development, further fueling its growth.
Despite its significant growth and widespread presence, the Islamic banking sector still faces challenges. Regulatory hurdles and lack of standardization across different jurisdictions remain key obstacles. Furthermore, there is a need for greater education and awareness about Islamic finance principles among both consumers and financial professionals. Overcoming these challenges will be crucial for the Islamic banking sector to realize its full potential and further establish itself as a viable alternative to conventional banking.
(Response: The Islamic banking system is estimated to be $2 trillion in size, constituting only 1% of the total world banking sector, but it has experienced rapid growth in recent years, expanding at an annual rate of 17.6% between 2009 and 2013. Despite its smaller size, Islamic banking has a widespread presence, operating in 105 countries as of 2010.)