Developing countries face large financing gaps and debt vulnerabilities, prompting interest in whether Islamic finance—now exceeding $4 trillion in assets—can evolve from a niche sector into an alternative development model emphasizing risk-sharing and real-economy activity.

Instruments such as zakat, waqf, blended social-commercial finance, and a sukuk market surpassing $1 trillion are being used to fund infrastructure, renewable energy, MSMEs, and halal value chains, as highlighted at Indonesia’s Sharia Economic Festival.

Islamic finance is framed as a platform for South-South cooperation and policy learning among Muslim-majority and other Global South countries, though it is presented as a complement rather than a replacement for conventional finance, with success depending on translating principles into measurable development outcomes.

For decades, developing countries across the Global South have relied on government borrowing, foreign aid, multilateral lending, and private capital inflows to finance development. These mechanisms have supported infrastructure expansion, poverty reduction, and economic growth. Yet they have also left many countries vulnerable to rising debt burdens, financing gaps, external shocks, and uneven development outcomes.

Today, these challenges are becoming increasingly difficult to ignore. Developing economies face growing demands for infrastructure investment, climate adaptation, food security, and financial inclusion, even as fiscal constraints and global economic uncertainty limit access to affordable financing. Against this backdrop, an important question is emerging: can Islamic finance evolve beyond a niche financial sector and become an alternative development model for the Global South?

The idea deserves serious attention. Over the past two decades, Islamic finance has grown into a global industry with assets exceeding US$4 trillion, spanning banking, capital markets, takaful, social finance, and investment products. At the same time, developing countries face an estimated annual financing........

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