GIFR 2011
  GIFR 2010

Islamic Finance Country Index: methodology and results

As stated in Chapter 1, the global Islamic finance services industry is currently valued at USD1.357 trillion by the end of 2011. The year 2011 also saw tremendous growth in one of the asset classes, which contributed to the further progress in the Islamic banking and financial services in an otherwise depressed environment for financial services. Sukuk saw a 77 percent growth totaling USD85 billion in issuance. The growth in global Islamic banking and services industry was 16.04 percent.

In 2011, Islamic Finance Country Index (IFCI) was launched, which ranked 36 countries of the world in terms of their involvement and leadership role played in the global Islamic financial services industry. A dedicated team at Edbiz Consulting maintains a data set to which a proprietary research methodology is applied to create an index, which becomes the basis of the country rankings.

Detailed methodology of the IFCI was produced in GIFR 2011, a summary of which is given in the following for the benefit of present readers.

The methodology on which IFCI is based on a multivariate analysis of a number of factors that contributes to the incidence and growth of Islamic financial services in different countries of the world. This IFCI does not rank countries only on the basis of one chosen factor or variable ( e.g., assets under management of Islamic financial institutions, market capitalisation or paid up capital (indicators of size). Rankings based on univariate analysis are at best incomplete. Such rankings compare one country with another based on any one single variable. Although it is simpler and easier to implement, construct and calculate, the analysis is not comprehensive enough to draw meaningful conclusions. Hence, IFCI employs a multivariate analysis.

The aim of this index is to come up with a ranking that is objective in nature. It is the first and the only index of its kind in the Islamic banking and finance industry, and has proven to be very popular amongst regulators, analysts, researchers and industry players all over the world. IFCI ranks countries based on the available information on the different variables across each of these countries in a manner that avoids any bias judgment affecting the outcome. The index was constructed with the aim that the data should speak for itself.


We started the IFCI 2012 with 65 countries across 16 different variables and ended up ranking 42 countries on the basis of 8 variables. The data was collected from various primary and secondary sources including, but not limited to, Islamic Financial Information Services (IFIS), Bloomberg, Thomson Reuters, central bank websites, individual IFI's published accounts, newspapers and other country specific resources. Exhibit 1 shows the 8 variables used for the IFCI 2012 together with their weights.

Exhibit 1: Description of the variables chosen

Muslim Population Represents the absolute number of Muslims living in a country
Number of Institutions involved in Islamic Finance Industry Represents both banking and non-banking institutions involved in Islamic finance in a country
Number of Islamic Banks Represents fully fledged Islamic banks in a country of both local and foreign origins
Size of Islamic Financial Assets Represents all assets relating to the industry in a country
Size of Sukuk Represents total size of sukuk issued for the reported year
Regulatory and Legal Infrastructure Represents the presence of regulatory and legal environment enabling IFI to op-erate in the country on a level playing (e.g., Islamic banking act, Islamic capital markets act, takaful act etc.)
Central Shari'a Supervisory Regime Represents the presence of a state-representative body to look after the Shari'a-compliancy process across the IFI in a country
Education and Culture Represents the presence of an educational and cultural environment conducive to operations of the IFI (this could be formal Islamic finance qualifications, degree courses, diplomas, and dedicated training programmes)


As per IFCI 2011, we located data for the 8 variables on all 42 countries. The data was then suitably organized to conduct a multivariate analysis. Similar to 2011 the data was once again tested to see if it contained meaningful information to draw conclusions from. Factor analysis was once again preferred to determine the meaning of clusters of shared data set. The Kaiser-Meyer-Olkin (KMO) method was used to check if the factor analysis was appropriate. High values (between 0.5 and 1.0) indicate factor analysis is appropriate. Values below 0.5 imply that factor analysis may not be appropriate or suitable. We found this measure to be 0.8, which was reasonable to continue with the factor analysis. The factor analysis was run to compute Initial Communalities to measure the proportion of variance accounted for in each variable by rest of the variables. This procedure provided us a statistically significant method of assigning objective weights to all the 8 variables.

By using the above methodology we managed to remove the subjectivity factor in the index as here the data spoke for itself and the statistical model came up with the weights. In a univariate analysis, itis not possible.

As the Exhibit 2 below suggests, our analysis generated slight changes in the weights of different variables i.e., the variable Number of Islamic Banks got a weight of 21.9 percent in 2012, compared to 21.8 percent for 2011. Central Shari'a Supervisory Regime changed to 19.6 from 19.7 percent in IFCI 2011. Number of Institutions Involved in Islamic Finance Industry changed to 20.1 from 20.3 percent. The real significant change is in the weight for the "Size of Sukuk" (from 6.6 percent in 2011 to 7.2 in 2012), which is consistent with the observed increasing importance of sukuk in helping the Islamic financial services grow.

VARIABLES % Weights (2011) % Weights (2012)
Number of Islamic Banks 21.8 21.9
Central Shari'a Supervisory Regime 19.7 19.6
Number of Institutions involved in Islamic Finance Industry 20.3 20.1
Size of Islamic Financial Assets 13.9 13.4
Size of Sukuk 6.6 7.1
Muslim Population 7.2 7.3
Education and Culture 5.7 5.7
Regulatory and Legal Infrastructure 4.9 4.9

The above weights point to the relative importance of each constituent variable of the index in determining the rank of an individual country. Thus, it is natural to assume that countries with a higher number of Islamic banks, a country with a central Shari'a supervisory regime, and number of Institutions involved in Islamic banking and finance would have higher ranks as compared to those who have smaller values for these variables even if they have greater size of Islamic financial assets, sukuk , a larger population, better education and awareness about Islamic banking and finance, and also a more enabling regulatory and legal infrastructure.

The Model
The model used for the IFCI index (Exhibit 3) is as below:

Where C= Country j = 1, 2, …., 42 W= Weight for individual variable X= Variable

With these minor changes in the data set and resultant changes in the weights assigned to the variables used, the above model generated some interesting results. While most of the countries included in the current sample (42 as opposed to 36 for the previous year), held their positions in the ranking list, there were also some interesting movements. Exhibit 4 and Exhibit 5 provide a comparison of the ranking of the countries for the years 2011 and 2012.


The top three countries have remained unchanged: Iran ranked as number 1 of the 42 countries followed by Malaysia and Saudi Arabia as number two and three, respectively. Iran leads the table across all the variables. Malaysia, a country that has seen the highest number of sukuk issuance for the year 2011, remains at number 2, with the third largest Islamic financial assets after Iran and Saudi Arabia. Saudi Arabia holds its position at number 3, with the second largest sukuk Issuance for the year 2011. Kuwait moved two points up from number 6 to 4. Kuwait, the fourth largest country in terms of Islamic financial assets, certainly shows resilience to political and economic shocks, and may very well be seen as a stable market for Islamic financial services. United Arab Emirates remained at number 5, with the 4th largest Islamic financial assets in the world.

Like Kuwait, Bahrain has also improved in its IFCI ranking, moving up from the 8th position in 2011 to 6th this year. Bahrain has the second highest number of Islamic banks in the world. Results show that the effects of political turmoil are receding and that the country is back on the track to take its position as one of the centres of excellence for Islamic banking and finance. On close scrutiny of the data, however, one may be inclined to conclude that the improvement in the Bahrain's rank is due to increase in population of 476,701 since last year.

Indonesia, a country which has the highest number of Muslims and the highest number of institutions involved in Islamic finance, moved down from number 4 in IFCI 2011 to 7th position this year. This change in ranking might be due to the lower growth in Islamic financial assets, as compared to the others who actually moved up the ladder this year.

Pakistan, another country that ticks all the boxes, however moved down by one position to number 8. Despite the fall, the country has a huge potential for growth. Pakistan has 7.8% of its banking assets under the management of Islamic banks. Islamic banks hold 8.4% of the deposits in the banking sector, and their share in financing and investments provided by all banks reached 7.4% by the end of 2011. A conservative estimate of demand for Islamic financial services is about 20% of the total. This shows how significant the potential is for growth in Islamic banking and finance in Pakistan. Another interesting case is Qatar which moved from the 12th position to 9th in IFCI 2012. Major contributors to this improvement in ranking are the increase in Islamic financial assets (currently Qatar is number 7 in terms of Islamic financial assets in the world), which was helped by impressive sukuk issuance in 2011 (Qatar was the 4th largest Islamic sukuk issuer during the year).

Sudan has remained unchanged at number 10. UK has moved up the ranking from 15th in IFCI 2011 to 11th in IFCI 2012, followed by Turkey, Bangladesh, Egypt and Brunei Darussalam at numbers 12, 13, 14, and 15, respectively.

It is interesting to see that some of the countries that are very new to Islamic banking and finance feature in IFCI 2012. The inclusion of countries like Oman, Afghanistan and Syria in the list of top 30, points to the reality that Islamic banking and finance has yet to attain meaningful depth on a global level.

Exhibit 3: Islamic Finance Country Index (IFCI)

Exhibit 4: Changes to country rankings for the year 2012

Country IFCI 2011 IFCI 2012 Change
Iran 1 1 -
Malaysia 2 2 -
Saudi Arabia 3 3 -
Kuwait 6 4 +2
United Arab Emirates 5 5 -
Bahrain 8 6 +2
Indonesia 4 7 -3
Pakistan 7 8 -1
Qatar 12 9 +3
Sudan 10 10 -
United Kingdom 15 11 +4
Bangladesh 9 12 -3
Egypt 13 13 -
Turkey 14 14 -
Brunei Darussalam 23 15 +8
Jordan 20 16 +4
Kenya 24 17 +7
Syria 17 18 -1
Yemen 19 19 -
Tunisia 25 20 +5
Oman N/A 21 N/A
Sri Lanka 26 22 +4
Singapore 33 23 +10
Algeria 16 24 -8
Afghanistan 21 25 -4
South Africa 30 26 +4
Thailand 29 27 +2
Palestine 27 28 -1
Lebanon 22 29 -7
India 11 30 -19
Nigeria N/A 31 N/A
Senegal 34 32 +2
Gambia 35 33 +2
France N/A 34 N/A
Kazakhstan N/A 35 N/A
Switzerland 28 36 -8
Germany N/A 37 N/A
Tanzania N/A 38 N/A
Canada 36 39 -3
The Philippines N/A 40 N/A
United States Of America 18 41 -23
Mauritius N/A 42 N/A

Exhibit 5: IFCI 2012 as compared to adjusted IFCI 2011