Expert Reveals Why Islamic Finance Is More Resilient in Crises

JAKARTA – Mahbubi Ali, Deputy Dean of the IIUM Institute of Islamic Banking & Finance Malaysia, believes the resilience of the Islamic economy and finance is most visible during economic crises. According to him, the Islamic financial system has better endurance than its conventional counterpart because it is grounded in real assets and risk-sharing mechanisms.

“In terms of resilience, Islamic economics, particularly Islamic finance or Islamic banks, has proven more robust than conventional finance, especially during crises. So if we want to see the resilience of the Islamic economy, we should prove it in times of crisis,” said Mahbubi at the Islamic Economics Summer School (IESS) 2026, organised by the Centre for Islamic Economics and Business at Universitas Indonesia (PEBS UI) on Wednesday (29/7/2026).

Mahbubi noted that, historically, the Islamic finance sector has also recorded consistent growth globally. Whilst conventional finance generally grows below 10 per cent annually, Islamic finance has achieved double-digit growth of around 20 per cent per year.

According to him, one factor that makes Islamic banking more robust is the application of asset-backed and risk-sharing schemes. Under these mechanisms, Islamic financing is considered less affected by rising interest rates, because prices are agreed upon from the outset.

“Islamic banking is not affected by interest rate increases because there is clarity on pricing from the start, and so on,” he said.

Mahbubi cited Malaysia’s experience during the 1998 monetary crisis as an example. According to him, that crisis became a turning point for public confidence in Islamic banking.

“For example, our experience in Malaysia in 1998, when there was a global monetary crisis, that became a turning point where customers of conventional banks shifted or switched to Islamic banks,” he said.

He explained that many customers moved to Islamic banks because conventional financing follows increases in benchmark interest rates, whereas Islamic financing provides price certainty in accordance with the agreed contract.

Mahbubi said this development has brought the Islamic banking market share in Malaysia to around 47 per cent today. According to him, much of this growth has also been driven by growing trust among non-Muslim customers in the principles of certainty, fairness and the objective of public benefit (maqasid) applied in Islamic banking.

Nevertheless, Mahbubi considers the global market share of Islamic finance to still be relatively small. Global Islamic financial assets have indeed reached around USD 5 trillion to 6 trillion, but this remains less than 1 per cent of total global financial assets.

In the Indonesian context, Mahbubi sees enormous opportunity for developing the Islamic economy, supported by the world’s largest Muslim population. According to the State of the Global Islamic Economy (SGIE) 2025/2026 report, Indonesia ranks fourth globally in Islamic economic development, after Malaysia, the United Arab Emirates and Saudi Arabia.

“In the Indonesian context, we have strength from the demographic factor, where the majority of our population is Muslim, and we are also the country with the largest Muslim population in the world. This is therefore a moment of opportunity for developing the Islamic economy and finance in Indonesia and around the world,” said Mahbubi.