Islamic Financial Institutions Financing the Terrorism? Regulator’s Role in Evidencing it a Fallacy

Muhammad Ayub
Published Online: December 2020

Although Islamic finance industry has successfully attracted many customers beyond the Muslim world, yet it faces some unique challenges. One such challenge is the perception that Islamic finance is seen as part of a wider agenda by political Islamists. The critics of Islamic finance express concerns about possible ties between Islamic finance and the terrorist financing and the use of Islamic finance to fund Islamic extremist groups. Such negative perceptions were most visible during the first five years of the 9/11 attacks. However, perceptions improved after 2005, particularly amidst the economic crises since 2007 that badly affected the Western countries, while Islamic finance gained its momentum with double-digit growth rates. But, still there have been some voices linking Islamic finance with money laundering and terrorists financing. The editorial explores how the IFIs could avoid such perception on a sustainable basis. It suggests a role for the governments and the regulators to remove unquestionably the perception of IFIs financing terrorism. The Islamic finance regulators may take it as an opportunity to penetrate the global finance market by focusing on financing the real sector activities in which case there will be no possibility of financing the terrorists by the IFIs. It would also enhance credibility of Islamic finance discipline leading to its faster growth.


Islamic Financial Institutions, Financing the Terrorism, Regulators Role.