Islamic banking: Resilience in a geopolitically volatile environment

Islamic banking remains a fundamental pillar of the Middle East’s financial landscape, underpinning liquidity, capital formation, and economic stability. Yet, in today’s geopolitically volatile environment, resilience can no longer be viewed through traditional structural lenses alone. Instead, it demands a forward-looking approach that integrates geopolitical realities directly into risk assessment and management.

Our latest report explores how Islamic financial institutions, which represent over 70% of the global Islamic financial services industry assets, must evolve their resilience frameworks. Key structural strengths, such as asset-backed financing, Shari’ah-compliant market infrastructure, and dual regulatory oversight, remain vital. However, the increasing complexity of geopolitical tensions requires enhanced risk judgement capabilities that translate external volatility into actionable insights.

Liquidity management emerges as a critical challenge, given the limited availability of Shari’ah-compliant high-quality liquidity assets and traditional liquidity tools. The report highlights the strategic importance of tradable sukuk, contingency liquidity planning, and the ongoing development of domestic Islamic financial markets to mitigate funding costs and operational constraints.

Ultimately, this report explores that the future of resilience in Islamic banking lies in the ability to quantify geopolitical volatility into measurable risk judgements, enabling stronger stability, better decision-making, and sustainable growth in a complex global environment.