The Islamic Development Bank Institute has partnered with the London Stock Exchange Group to release a comprehensive report examining how Islamic finance instruments can help member countries overcome structural economic barriers, unveiled at a major conference in Bahrain on November 2, 2025.
The publication, titled Development Traps and the Role of Islamic Finance, was launched during the 20th AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) Islamic Development Bank Annual Islamic Banking and Finance Conference held in Manama, bringing together policymakers, economists and industry leaders.
The report forms the inaugural volume in a new Development Traps Report Series and introduces a data-driven framework to identify five core constraints that frequently slow or stall development progress: the Middle Income Trap, Natural Resources Trap, Small and Medium Enterprises and Micro, Small and Medium Enterprises Trap, Debt Trap, and Technology Trap.
Drawing on datasets from more than 20 global institutions including the World Bank, International Monetary Fund (IMF), United Nations Development Programme (UNDP), World Intellectual Property Organization (WIPO), Organization of the Petroleum Exporting Countries (OPEC) and International Labour Organization (ILO), the report combines economic diagnostics with practical solutions grounded in Islamic finance instruments.
These solutions include the use of sukuk for infrastructure financing, waqf for social funding, and mudarabah and zakat for shared risk investment and poverty reduction. Sukuk are Islamic bonds that comply with Sharia law, while waqf refers to endowment structures, mudarabah denotes profit sharing partnerships, and zakat represents obligatory charitable giving.
Dr. Sami Al Suwailem, Acting Director General of the Islamic Development Bank Institute, said during the launch that the report series “represents an important milestone in our efforts to provide actionable intelligence for policymakers” and offers “early warning signals to help our member countries avoid structural traps and leverage the full potential of Islamic finance for sustainable, inclusive growth.”
He noted that the collaboration with the London Stock Exchange Group “bridges the analytical rigor of global capital markets with the ethical and risk sharing foundations of Islamic finance.”
Mustafa Adil, Head of Islamic Finance at the London Stock Exchange Group, stated that the partnership “demonstrates how financial innovation and reliable data can be mobilized to address the most pressing development challenges” and emphasized that “Islamic finance is not only ethical, it is strategically positioned to deliver impact in emerging economies.”
The publication incorporates expert perspectives from global thought leaders including Dr. Bambang Brodjonegoro, Dean of the Asian Development Bank Institute, and Dr. Mahmoud Mohieldin, United Nations Special Envoy on Financing the 2030 Agenda for Sustainable Development.
The report arrives at a critical juncture for Islamic finance globally. The Islamic Development Bank Institute serves as the knowledge arm of the Islamic Development Bank Group, guiding research and policy development based on Islamic economic principles for member countries and Muslim communities worldwide.
According to the Islamic Development Bank Institute, the publication will serve as a foundation for five upcoming thematic volumes, each delving deeper into one of the identified development traps. The next edition will focus specifically on the Middle Income Trap, addressing challenges of economic diversification, productivity and human capital development alongside policy proposals rooted in Islamic finance principles.
The Middle Income Trap describes a situation where countries achieve middle income status but struggle to transition to high income economies, often becoming stuck due to rising costs, slowing productivity growth and inability to compete with either low wage or high innovation economies. Many Islamic Development Bank member countries currently face this challenge.
The Natural Resources Trap refers to the phenomenon where countries rich in oil, gas or minerals experience slower economic growth and development compared to countries with fewer natural resources, often due to economic overreliance on commodity exports and weak institutional development.
The Small and Medium Enterprises and Micro, Small and Medium Enterprises Trap highlights how smaller businesses in developing economies frequently struggle to access finance, technology and markets, limiting their growth potential and broader economic impact despite representing the majority of businesses and employment.
The Debt Trap describes unsustainable borrowing patterns where countries accumulate external debt faster than their capacity to service it, constraining fiscal space for development spending and potentially triggering economic crises. Several Islamic Development Bank member countries have faced debt sustainability challenges in recent years.
The Technology Trap examines how developing countries fall behind in adopting and developing new technologies, widening the gap with advanced economies and limiting productivity gains, innovation capacity and global competitiveness.
The London Stock Exchange Group’s Islamic Finance division delivers market intelligence, Sharia compliant indices, data analytics and sustainability insights designed to promote ethical investment and economic development. The partnership represents a significant collaboration between global capital market infrastructure and Islamic economic institutions.
The Islamic Development Bank Group comprises multiple entities focused on economic development across its 57 member countries, primarily in the Muslim world but also including some non Muslim countries. The bank was established in 1975 and is headquartered in Jeddh, Saudi Arabia.
The report’s data driven approach aims to provide member countries with quantifiable metrics and early warning indicators to identify when they are entering or at risk of falling into specific development traps, allowing for proactive policy responses rather than reactive crisis management.
By integrating Islamic finance principles with rigorous economic analysis and global datasets, the initiative seeks to demonstrate that Sharia compliant financial instruments can serve not merely as ethical alternatives but as effective tools for achieving sustainable development objectives and overcoming persistent structural economic challenges.
