Issuance of so-called ‘green sukuk’ has risen sharply in the past three years (Chart 2) – and the Islamic Development Bank issued an innovative $ sustainability sukuk in June.15 But these are still quite modest numbers relative to the vast sums of money now looking to invest in credible ESG assets.16 So there’s plenty of scope for further growth.   Third, the prohibition on many forms of traditional banking in Islamic finance should naturally spur exploration of more innovative forms of intermediation. There’s great interest in exploring the scope for Islamic fintech like Shari’ah compliant e-money platforms and  On this topic, see “Why Economists (and Economies) Should Love Islamic Finance” by Willem Buiter and Ebrahim Rahbari (2015): https://willembuiter.com/if.pdf. 13 See for instance https://bankunderground.co.uk/2020/06/24/pricing-gdp-linked-bonds/ and ‘The Case for GDP-linked Sukuk’ by Arshadur Rahman in ‘Sovereign GDP-Linked Bonds: Rationale and Design’ [2018], edited by Robert Schiller, Jonathan Ostry and James Benford. 14 https://www.bankofengland.co.uk/news/2020/november/hmt-boe-and-fca-convene-working-group-to-facilitate-investment-inproductive-finance. 15 https://www.isdb.org/news/islamic-development-bank-issues-us-15-billion-debut-sustainability-sukuk-in-response-to-covid-19. 16 I discussed these themes in a speech in October 2020: https://www.bankofengland.co.uk/speech/2020/andrew-hauser-theinvestment-association-viewpoint. 12  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  peer-to-peer lenders, to tackle a range of issues, including financial inclusion.17 The UK is a world leader in this sector (Chart 3). Chart 2 Green sukuk issuance  Chart 3 Number of Islamic finance fintech firms by country  Source: Islamic Financial Services Industry Stability Report 20202  Source: data from https://ifnfintech.com/landscape/, and Bank calculations.

It is possible to view the development in itself as a risk in that it has created new, potent instruments and possibilities for speculation. If used incorrectly or carelessly, these instruments could destabilise the financial system or in other ways lead to inconvenience. It is therefore important that both the financial agents themselves and the authorities responsible in this field closely follow developments in both theoretical and practical work and are prepared to take action if they identify risks to stability. Of course, it is another matter in this context - as in others - that the costs of new methods of control must be weighed against the risks to be managed. Regardless of the fact that there are now outstanding issues to be resolved to improve risk management, my overall conclusion is positive. The development underway with regard to identifying, measuring and managing risks provides possibilities to improve stability in the banks and other parts of the financial sector. We still have some way to go, but the work is proceeding and is presently in an intensive phase in both the financial institutions and the authorities concerned. The Riksbank intends to continue to play an active role in this work. Thank you. 4  BIS Review 10/2004