What is Islamic finance?

Modern Islamic finance emerged in the 1970s with the first Islamic banks, but its history dates back well before the 20th century. Today, Islamic finance is an important part of the global financial system.

In addition to independent Islamic financial institutions, conventional financial institutions, e.g., Deutsche Bank operate in the Middle East, with Islam-compliant banking windows. An Islamic window is a separate department within a traditional bank that provides Islamic financial products. This department is headed by an independent advisory board composed of eminent Muslim scholars.

In the western world, Islamic finance came into the spotlight when the subprime crisis in 2007 shook the global economy. Since then, Islamic finance has also taken on the role of an alternative financial instrument that can help to stabilize the international financial markets.

Islamic finance has experienced strong growth over the past few decades: The value of Islamic financial assets worldwide has grown from $150 billion in the 1990s to an estimated $2.2 trillion today. According to experts, the market is also expected to grow by another 10% to 12% in the next two years – despite the current pandemic-related subdued economic situation.

But what is Islamic finance and how do the products differ from conventional financing instruments?


  • Principles and Characteristics
  • Islamic Finance in Germany and Europe
  • The Book on Islamic Finance
  • Milestones

Principles and Characteristics

Islamic finance is based on the foundations of social justice and inclusion, and makes it possible to manage money and conduct business in accordance with the ethical principles of Islam.

Islamic finance includes activities such as saving, investing, and borrowing, e.g. to buy a property. Every transaction in Islamic finance is related to a real, economic underlying transaction. Business partners not only share profits, but also losses and the associated risks.

Linked to this way of thinking is the principle that no interest (riba) may be paid or earned on money. In Islam, interest (riba) is considered to be harmful to society from an ethical, economic, and social point of view.

However, this basic attitude towards interest (riba) is not unique to Islam. This negative attitude was also discussed in the Torah and the Bible. The ban on interest introduced by the Christian church in 850 was only lifted in 1830. In the Jewish Torah, a ban on interest is also mentioned several times.

Economic relationships that cause harm are also frowned upon. Islamic financial service providers therefore do not invest in the alcohol, gambling, armaments, sex, and tobacco industries and reject speculative transactions.

Islamic Finance in Germany and Europe

In general, Islamic finance is still in its infancy in Germany and Europe.

Germany tapped into the Islamic capital market when Saxony-Anhalt issued the country’s first Islamic bond (sukuk) in 2004. In 2015, the German banking supervisory authority granted a full banking license to an Islamic-oriented bank for the first time, thus responding to the increasing importance of Islamic finance.

In the UK, the first Islamic bank, Al Baraka International, was established in 1982 and Islamic finance has progressively developed in the market ever since. The UK issued its second state sukuk in 2021, which was more than double the size of the first issue in 2014. The £500 million Islamic bond was sold to a wide range of institutional investors in the UK, Middle East and Asia.

However, the increased emphasis on alternative financial solutions and strong demand for liquidity from emerging markets provide a solid foundation for sustained growth.

The development is also strengthened by Germany’s constantly growing Muslim population. The result of a current study shows that between 5.3 and 5.6 million Muslims are living in Germany. They make up between 6.4% and 6.7% of the total population, compared to 5.4% and 5.7% according to the 2015 microcensus.

The Muslim population in Germany has also become more diverse in recent years. With only 5% over the age of 64, Germany’s Muslims form a young population group. One fifth (21%) are children or youngsters under the age of 15, another 22% are between 15 and 24 years old.

The Book on Islamic Finance

You don’t have to be a Muslim to use Islamic financial products and services. The offer is available to all people who are interested in value-oriented saving and investing.

Since there is no separation between the religious and secular areas in Islamic finance, it is worth taking a closer look at this subject. The book “Islamic Banking und Islamic Finance” explains in detail the basics, instruments, and options of Islamic finance.

Dr. Bilgehan Akbiyik, one of the managing directors at INAIA, is co-author of the book, which was published 2017 in German by UVK Lucius Verlag.



The first experimental local Islamic bank was established in a rural area of Pakistan.


The Islamic Development Bank (IsDB) was founded with the mandate to finance projects in the OIC member countries.


The first modern commercial Islamic bank, Dubai Islamic Bank, and the first Islamic Insurance Company (or Takaful) – the Islamic Insurance Company of Sudan – were established.


The world’s first Islamic mutual fund, which only invests in Islam-compliant stocks, was established in Indiana, US.


The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was established.


The Dow Jones Islamic Market Index (DJIMI) was launched.


The Islamic Financial Services Board (IFSB) was established in Kuala Lumpur by the central banks of Bahrain, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, and Sudan along with the Islamic Development Bank, the AAOIFI, and the IMF.


The Islamic International Rating Agency started its operations in July 2005 in Bahrain.

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