The growth of financial institutions, instruments, and transactions operating without interest has been impressive, from assets totaling a meager $5 bn in 1985 to a current level of approximately $200 bn, says Professor M Kabir Hassan, PhD, Endowed Chair Professor of Finance and Economic Development, University of New Orleans.

Islamic banking has now established itself as a viable alternative to interest-based banking and has gained acceptance in both Muslim and non-Muslim countries. The growth of financial institutions, instruments, and transactions operating without interest has been impressive, from assets totaling a meager $5 bn in 1985 to a current level of approximately $200 bn. Currently, this banking system is integrated to over 60 countries throughout the world with over 250 Islamic financial institutions in operation. Although Islamic banking has gained acceptance, there exists a number of challenges to its continued growth and sustainability in the long run. There are four major challenges to Islamic banking systemto develop liquid secondary and money markets; to develop supervisory and regulatory framework for Islamic banks; to develop instruments for effective monetary and fiscal policy; and to standardize accounting and auditing practices as well as the process of religious approval of new instruments and techniques.

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