Size and Scope of the Islamic Finance Industry: An Analysis, The

International Journal of Management, Mar 2008 by Al-Salem, Faoud

Looking to the future there is the related issue that needs to be investigated, of the role of Islamic banks in electronic commercial operations, which are expected to be worth 6 trillion US dollars by the end of 2006 (Khooja, 2006). The estimate for the Islamic finance industry here is operations worth $ 1 trillion US dollars, an estimate based on the Islamic finance industry becoming relatively more important in the world financial economy, itself die to its success over a comparatively short time and its reputation as being 'promising' industry by other the financial institutions (Al Manea, 2006).

The fourth kind of estimate of the future size of the Islamic finance industry comes from the examining how the total assets of the banks in the industry have changed in the past and extrapolating this to the future. Based on this kind of forecast, it is predicted that the industry will have an annual growth rate of 15-20% annually, from current assets of US $300 billion, a figure which is comparable to the total assets of an average or typical large United States bank of $250 billion (Al Suwaydi, 2005; Boodai, 2005; Aloush, 2005). In addition, the current paid-in-capital of the majority of Islamic banks is less than $25 million, with no Islamic financial institution currently having paid-in-capital in excess of an amount of US$ 1 billion. The Islamic finance industry currently manages assets of between US$ 400-500 billion, with 300 institutions operating in more than 40 countries (Al Muzaini, 2006; Boodai 2005).

While these estimates are useful and may give an indication of the likely future size of the Islamic finance industry, it is important to realize that they are based on predictions about may happen from current trends, often from data that are not as good or complete as they should be.

Islamic financial institutions are active mainly in three areas: Kuwait, the Gulf Region, and International Markets (Table 2). Various measures have been employed to assess the size of the industry in these three 'areas' with several agencies, such as the International Monetary Fund (IMF) and the Central Bank of Kuwait (CBK) concluding that there has been definite growth is a growth in the number and weight of Islamic non-banking financial institutions, such as investment companies and investment funds in each of these areas over the past few years (IMF 2004; CBK 2004/2005). There can be little doubt that the Gulf Region has seen the fastest growth in both Islamic banking and finance industries over this period. However, while there is consensus that 'growth' has occurred there is still disagreement on the actual current size of the industries that has resulted from this growth. Table3 shows the development of Islamic banks in Kuwait and in other GCC countries. It is expected that funds invested in such banks in the Gulf region will reach US $210 billion by 2010 in the GCC region (Khooja, 2006). Islamic investment funds are the fastest growing sector of the Islamic financial services industry and, according to some, may be the most effective vehicle through which Islamic finance industry can compete with conventional banks (Bahrain Monetary Agency, Governor 2006; Hassouane 2004; El Qorchi, 2006).