Introduction 19
conventional securities. As more steps are taken to develop London as a
hub for Islamic fi nance, it poses serious threats for regional fi nancial cen-
ters such as Bahrain and Malaysia. Some argue that this may lead to capital
fl ight, which can hamper the development of the regional centers. However,
others argue that London can play a complementary and enhancing role
through providing fi nancial innovations, cost-effective execution and access
to other markets.
The presence of Islamic fi nance is beginning to be felt all over the globe
and multilateral institutions are also engaging with the market. The World
Bank and the IMF have made contributions to this fi eld through research,
and other institutions are also getting involved. The International Finance
Corporation (IFC)—the private-sector arm of the World Bank—has exe-
cuted several Shari’ah-compliant transactions. In 2009, IFC issued sukuk
to the value of US$100 million for funding Islamic fi nance projects in key
sectors such as health, education, and infrastructure in the Middle East. In
2007, the World Bank-affi liated Multilateral Investment Guarantee Agency
(MIGA) provided its fi rst-ever guarantee for Shari’ah-compliant project
fi nancing, worth US$427 million.^17
The major developments in modern Islamic economics and fi nance are
summarized in Table 1.1.
Institutional Development
The private sector has been much more active than the public sector in
the growth of this market. Governments such as those of Bahrain and
Malaysia have made serious efforts to establish centers for Islamic fi nancial
institutions and the institutional infrastructure to support development of
the fi nancial sector is slowly emerging. This includes institutions to deal
with accounting and regulatory standards, corporate governance, credit
ratings, and capital markets. These efforts to develop institutions are also
supported by several stakeholders such as the IMF, central banks of lead-
ing Muslim countries, international standard-setting bodies, and fi nancial
centers.
As mentioned earlier, the IDB was established in 1975 as a regional
development institution to promote economic development in Muslim
countries through Islamic fi nance. Since then, it has established several sis-
ter institutions to develop the private sector, insurance facilities, and trade
and export fi nancing.^18
The Islamic Research and Training Institute (IRTI)—the IDB’s research
arm—was established in 1981 to undertake research and training in a range
of economic, fi nancial and banking issues. It has become a rich resource
center for, and has played a critical role in, developing a 10-year master plan
for the Islamic fi nancial industry.
The Islamic Corporation for the Insurance of Investment and Export
Credit (ICIEC), another of the IDB’s sister organizations, was established in