The development towards a more equity-based financial system where risk-sharing takes place reduces the over-reliance on debt funding, thus avoiding excessive debt and speculation and thus financial system fragility. In Islamic finance, this is further reinforced by Shariah principles that strongly discourage excessive debt given its detrimental effects on society. The use of risk-sharing transactions and undertakings under participatory finance models in Islamic finance thus offers the potential to reinforce the links between finance and the real economy. The contractual arrangements between the financier and the entrepreneur place  2  BIS central bankers’ speeches  strong emphasis on the value creation and economic viability of the enterprise. This results in a close link between the growth of the financial sector and real sector activities in which the expansion or contraction of credit is dependent on developments in the real sector. This would provide a restraint on financial engineering and innovation as financial transactions need to be supported by real assets, thus aligning innovation to productive economic activities. As a result, the dangers of unbridled innovation are also substantially reduced. The move to embrace the risk-sharing dimension of Islamic finance also presents new opportunities for financial management. The profit sharing and risk-sharing characteristics of Islamic financial transactions strengthen the incentives for Islamic financial institutions to undertake the appropriate due diligence on the transactions to ensure that the profits are commensurate with the risks assumed.

Many Asian countries have leveraged on the sukuk market to raise funds for infrastructure development in the healthcare, transportation, telecommunications and education sectors that contribute towards generating broad-based growth. There is a seemingly good fit between sukuk and infrastructure project financing that requires large capital outlays with long gestation periods. This can significantly benefit IDB member countries which can tap into the sukuk market to meet the strong current and future demand for infrastructure financing, particularly for countries that face large funding gaps for infrastructure development. Indeed, it is encouraging that developing economies in Africa have already begun to leverage on the sukuk market for infrastructure financing particularly those that have progressed further in laying the legal groundwork to enable sukuk issuances. Globally, the performance of the sukuk market has exceeded expectations. From an outstanding amount of $ billion in 2006, the sukuk market has expanded more than eightfold to $ billion by December of 2012. Future growth prospects for the sukuk market is supported by the positive growth prospects in both the GCC and Asian regions and the increasing funding needs for infrastructure projects in these regions. In the Asian region, it is estimated that $ trillion is required for infrastructure development until the year 2020. Infrastructure spending has also been one of the key drivers of economic growth in the GCC in the recent decade. In the MENA region, the changing energy landscape towards more renewable energy and clean, efficient technologies presents significant potential for the use of sukuk to meet such financing requirements.