As the global economy undergoes a fundamental transition, the United States’ long-held supremacy as the world’s economic powerhouse is visibly crumbling. With rising debts, internal political tensions, and emerging global competitors, America is losing her footing as as the global leader. The kind of financial and economic control she has held for decades appears to be shrinking thanks to the fierce competition from China as a single entity, and BRICS as a unified group. While China emerges as a formidable economic force, its secular government model and non-Islamic financial culture, however, puts a question mark regarding the compatibility its economic and financial systems with the spiritual and ethical principles of Islam. In this changing world, Islamic finance needs more than just growth; it requires leadership. A leadership that is premised on both economic power and Islamic ethics. But which Muslim-majority country is best prepared to take on this responsibility? This is a question that begs for an answer.
The need for leadership in the Islamic financial sector is more than a preference; it is a necessity based on Islamic teachings. The Prophet Muhammad (peace be upon him) emphasised that when three individuals embark on a journey, one should be designated as the leader. Abu Sa‘īd and Abu Hurayrah (may Allah be pleased with both of them) reported that the Prophet (may Allah’s peace and blessings be upon him) said: “When three people set out on a journey, they should appoint one of them as their leader.” This Hadith demonstrates the value of leadership in even the smallest groups, let alone in a worldwide business striving to be a viable alternative to traditional finance. This notion applies to the larger contexts of governance, economics, and society wellbeing. A cohesive leadership offers direction, resolves problems, and coordinates efforts to achieve common goals.
Islamic finance is currently dispersed, with different regulatory frameworks and norms. In contrast, conventional finance uses the same accounting system globally under the International Financial Reporting Standards (IFRS) and a single standard, such as Basel. Although the AAOIFI standard from Bahrain has made significant progress in standard-setting, other nations -like Malaysia- use different frameworks, such as IFSB and MFRS, which causes differences in practice, application, and perception. Islamic finance must unite under a single roof, striving for a common goal with uniform standards and leadership, if it is to thrive and become widely accepted globally.
Let us dive in to analyse the potential leaders in the Islamic finance sphere.
Amongst them is Bahrain, which has long positioned itself as a significant player in the Islamic banking market by establishing AAOIFI, a standard-setting institution. Many Middle Eastern and other countries have adopted AAOIFI, which attempt to bring Islamic financial operations into more harmony. Although AAOIFI has made significant achievements in standardising Islamic financial processes, there is concern that Bahrain alone lacks the economic power to lead the global Islamic banking sector. The nation’s size, market restrictions, and reliance on regional politics may limit its influence.
Another is Malaysia, which constantly features in conversations as a potential leader. The country stands out for its well-structured Islamic financial ecosystem, which is aided by efforts from the government, academic institutions, and a solid regulatory framework overseen by Bank Negara Malaysia. Malaysia has successfully integrated Islamic finance into its national development agenda, with thriving Islamic banks, takaful institutions, and a strong sukuk market. Furthermore, Bank Negara Malaysia has played a key role in fostering research, innovation, and regulatory clarity. Despite its advancements, Malaysia still faces fundamental challenges. As a developing nation, it lacks the economic influence, just like Bahrain, to have a significant impact on global financial policies. Furthermore, its Islamic finance industry, while advanced, remains a small subset of its overall financial system.
The others are the Gulf Cooperation Council (GCC) countries, particularly Saudi Arabia, the UAE, Qatar, and Kuwait. These countries wield considerable economic influence and have expressed an increased interest in developing their Islamic finance sectors. Saudi Arabia, with its vast oil wealth and standing as custodian of the Two Holy Mosques, has symbolic value in the Muslim world, making it an obvious option. However, as we all know, the country’s greater integration into global conventional finance, as well as its progressive socioeconomic changes, present challenges that may jeopardise its position as a pure leader in Islamic banking. This is because pursuing economic leadership in the Islamic finance sector necessitates a commitment to support Islamic finance’s actual aims, which include social justice, equitable wealth distribution, and ethical financial practices. A nation competing for such a position must not only be economically strong, but also adhere to the moral and ethical principles of Shariah in all aspects of governance and finance.
In contrast, Dubai (UAE) promotes itself as an economically active and globally connected hub. It has a robust financial infrastructure and aspires to be a global Islamic economic capital. However, in order to effectively lead Islamic finance, a country must have a strong and diverse economy, a real adherence to Shariah principles beyond commercial interests, the power to influence global financial markets, and investment in research and development to meet modern problems. Despite its sophisticated infrastructure and openness to innovation, Dubai lacks the scholarly depth, real adherence to Shariah principles, and grassroots Islamic finance culture required to take the lead.
Lastly, are the Muslim-majority countries, Indonesia, Pakistan, Bangladesh, and Nigeria. These nations are regarded the world’s largest Muslim nations due to their teeming populations, which should translate to huge economic and financial potentials. Beyond that, their national governments are working to grow Islamic banking and the halal economy, particularly in Indonesia and Pakistan. However, these countries’ total economic strength and financial infrastructure continue to lag behind the leading players. While promising, they lack the institutional strength to lead the global Islamic financial market.
With this setting in mind, a clear picture emerges: no single country currently possesses all of the elements required to dominate the Islamic financial world. However, what is desperately required is a coalition, a united front in which one’s strength balances the weakness of another. A uniform standard, preferably using and enhancing AAOIFI as the worldwide baseline, should be agreed upon. Malaysia’s depth, Saudi religious credibility, Bahrain’s regulatory foresight, and Indonesia’s demographic strength might form a formidable alliance under a single governing council. This collaboration must prioritise the harmonisation of accounting standards, fatwa issuance, and regulatory oversight.
Islamic finance is more than just banking; it symbolizes moral, ethical, and spiritual values. It necessitates leadership that embodies not only financial strength but also spiritual vision. As the world seeks a more ethical and just financial system in the post-Western economic order, the opportunities for Islamic banking are enormous. The potentials of Islamic Finance can only be realised if they are explored under a united alliance. The time has arrived for the ummah to rise beyond individual pride and unite around a common goal: to lead not only with capital but also with character.