Islamic finance: challenges in 2017 and further ahead

Abstract

The article presents the history of development of Islamic financial institutions from the beginning of the 21st century, mainly in terms of the growth of their assets. Based on the structural analysis of the Islamic economic system based on sharia (a comprehensive system of legal and ethical norms based on the Koran and Sunni, a binding Muslim community), the article presents its current structure in a multi-dimensional approach. The aim of the article is to critically analyze the current state of the Islamic financial sector and to identify key areas of risk that are significant barriers to further development. The main barriers are the disproportionately high concentration of assets in the banking sector with the simultaneous small role of other areas, such as insurance or asset management, significant geographic and sectoral concentration of assets, small average size of Islamic financial institutions, lack of clear corporate standards and guidelines for sharia application in economic practice, complex structure of offered products and lack of qualified personnel. The article also presents secular factors conducive to the development of Islamic finances, mainly the rapid increase in the number of followers of Islam in the world and the ethical attractiveness of this sector model based on risk sharing between partners, which potentially opens the possibility of expansion outside the Muslim world. The article mainly uses descriptive analysis based on scientific literature, market reports and statistical data.