financing institution. these trends are expected to persist and the industry is set to grow. standard & poor services rating agency estimates that industry has potential to grow to $ 4 trillion over medium term. 2 as highlighted above, the exceptional growth in islamic finance, particularly since 2000, which has coincided with growth in oil revenues, has raised questions whether interest in islamic finance is one time phenomena? and what the future prospects and sustainability of the industry are? while motivations and driving factors for this industry vary across the world, this round of wave in islamic finance industry is there to stay there. what lends one confidence is the large investments by financial industry across main hubs in gcc / middle east / south east and south asia, within countries and growing foreign ownership and joint ventures across borders, in infrastructure development in this industry through : ( i ) issuance of holistic banking licenses or opening of special windows or creation of hubs / dedicated islamic asset management funds, private equity funds and hedge funds etc. accompanied by dow islamic index to which all such transactions subscribe too are large ; ( ii ) development of shariah knowledge and understanding and engagement of shariah advisors and scholars which together are providing required consensus, guidance and legitimacy to islamic industry, products and structures ; and ( iii ) development of islamic standard setters such as the islamic financial supervisory board and accounting and auditing organization for islamic financial institutions ( aaoifi ) and international islamic financial market ( iifm ) etc. by the central banks as well as a range of multilateral development agencies including the islamic bank malaysia : leading islamic finance – price water house coopers ; http : / / www. pwc. com / extweb / indissue. nsf / docid / 1d681d874f24fda7ca25720a00158bfd standard and poor : islamic finance outlook 2006, http : / / www2. standardandpoors. com / spf / pdf / media / islamic _ brochure _ 2006. pdf development. the combined efforts have helped develop and initiate implementation of islamic prudential regulatory, accounting and auditing frameworks, and inspection and supervision of financial institutions ; all these regional and global efforts are serious long term initiatives which are irreversible though maintaining and building momentum on these fronts would be critical to address the questions of sustainability and challenges facing this industry. sustainability and challenges of islamic finance prospects for sustainability of islamic

through private financial institutions based on the government's support and the bank's fund provisioning totals about 52 trillion yen. these loans will have a significantly positive effect since they serve as a support for firms that are having difficulties raising funds. on the other hand, these effectively interest - free loans are equivalent to almost 20 percent of the amount outstanding of loans to small and mediumsized firms provided by private financial institutions. therefore, interest - free and unsecured loans currently provided to support corporate financing might put downward pressure on spreads on the ordinary loans that will be made, even after the impact of covid - 19 subsides. in this case, the narrowing of lending margins would become more prolonged. the second factor inducing a decline in financial institutions'profitability is the decrease in investment income. as financial institutions have fulfilled the functioning of financial intermediation by responding to the need for support of financing, mainly of firms, the amount outstanding of bank lending rose significantly for july, by 6. 4 percent from the previous year. meanwhile, the annual growth rate in the amount outstanding of deposits was higher, marking 8. 3 percent, due mainly to an expansion in fiscal spending. in terms of value, while lending increased by 30 trillion yen, deposits rose by 60 trillion yen, exceeding the increase in lending by 30 trillion yen. financial institutions invest such excess deposits in, for example, treasury discount bills ( t - bills ) or current account deposits at the bank, but their estimated by using financial institutions'average contract interest rates on new loans and discounts ( 0. 78 percent ) and overhead cost ratios in the domestic business sector ( 0. 80 percent ; compiled by the regional banks association of japan ). profitability declines because the yields on t - bills and the interest rates on these deposits are extremely low. the third factor is the increase in credit costs. as financial institutions provide active support for firms whose financial positions have deteriorated due to covid - 19, a certain proportion of their loans could become nonperforming, leading to a rise in credit costs. the increase in these costs does not so far seem to be as serious as that observed after the global financial crisis ( gfc ). however, if the impact of covid - 19 expands, along with potential second or third waves, credit costs could increase to almost the same level seen at the time of the gfc. with the narrowing of lending margins and further declines in jgb yields, financial institutions have actively extended