With its growing international dimension, Islamic finance has assumed an increasingly important role in facilitating regional and international trade and investment flows thereby intermediating significant cross border financial flows. More recently, international financial centres such as London and Hong Kong have been increasing their connectivity with the Middle East and Asian regions, two important growth centres in the global economy. The increased international dimension of the sukuk market, in particular has facilitated the movement of funds across borders from jurisdictions with surplus funds to regions with investment opportunities thereby enhancing its potential as a vehicle to foster greater trade flows and investment and thus facilitating growth and development. The development of Islamic finance and its risk-sharing and equity financing aspects could be significantly rewarding for countries that venture into this alternative form of financial intermediation. However, to fully realise its potential, different elements of the financial system must evolve in tandem to provide the enabling conditions for this to occur. In such a system, it is essential for both investors and entrepreneurs to embrace different approaches in managing risk and return relationships that are embedded in the many variations of Shariah contracts. It is important that these relationships are well understood by the parties involved, and aligned with the clear contractual and operational requirements. 4  BIS central bankers’ speeches  Islamic finance: financial stability issues and challenges It is imperative that the lessons of the global financial crisis are not lost as the growth of Islamic finance gains further traction.
Many Asian countries have leveraged on the sukuk market to raise funds for infrastructure development in the healthcare, transportation, telecommunications and education sectors that contribute towards generating broad-based growth. There is a seemingly good fit between sukuk and infrastructure project financing that requires large capital outlays with long gestation periods. This can significantly benefit IDB member countries which can tap into the sukuk market to meet the strong current and future demand for infrastructure financing, particularly for countries that face large funding gaps for infrastructure development. Indeed, it is encouraging that developing economies in Africa have already begun to leverage on the sukuk market for infrastructure financing particularly those that have progressed further in laying the legal groundwork to enable sukuk issuances. Globally, the performance of the sukuk market has exceeded expectations. From an outstanding amount of $ billion in 2006, the sukuk market has expanded more than eightfold to $ billion by December of 2012. Future growth prospects for the sukuk market is supported by the positive growth prospects in both the GCC and Asian regions and the increasing funding needs for infrastructure projects in these regions. In the Asian region, it is estimated that $ trillion is required for infrastructure development until the year 2020. Infrastructure spending has also been one of the key drivers of economic growth in the GCC in the recent decade. In the MENA region, the changing energy landscape towards more renewable energy and clean, efficient technologies presents significant potential for the use of sukuk to meet such financing requirements.