Islamic Development Bank and London Stock Exchange Group launch study on ‘development traps’ facing emerging economies

A joint study by the Islamic Development Bank Institute and the London Stock Exchange Group identifies five “development traps” holding back emerging economies, and argues that Islamic finance could provide the ethical, risk-sharing tools to help them escape

The Islamic Development Bank Institute and the London Stock Exchange Group have published a new report arguing that Islamic finance could help developing nations escape structural barriers to growth, in a collaboration linking one of the world’s major multilateral lenders with a cornerstone of global capital markets.

Launched in Manama, Bahrain, on Sunday at the 20th AAOIFI–IsDB Annual Islamic Banking and Finance Conference, the study — Development Traps and the Role of Islamic Finance — is the first volume in a joint research series examining the persistent economic obstacles faced by the 57 member countries of the Islamic Development Bank (IsDB).

Drawing on data from more than 20 international institutions including the World Bank, IMF, UNDP, WIPO, OPEC and ILO, the report sets out a framework for identifying five recurring “development traps”: the middle-income trap, the natural-resources trap, the SMEs and MSMEs trap, the debt trap and the technology trap.

It argues that these interlinked barriers have left many emerging economies caught between rapid population growth and insufficient diversification — and that Islamic finance tools such as sukūk (Islamic bonds), waqf (endowments), muḍārabah (profit-sharing) and zakāt (almsgiving) could provide stabilising alternatives to conventional debt-based finance.

Dr Sami Al-Suwailem, Acting Director-General of the IsDB Institute, said the project was designed to give policymakers early warning of risks and to integrate Islamic financial mechanisms into long-term planning.

“This report series represents an important milestone in our efforts to provide actionable intelligence for policymakers,” he said at the launch. “It 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 added that the collaboration with the London Stock Exchange Group “bridges the analytical rigour of global capital markets with the ethical and risk-sharing foundations of Islamic finance.”

The publication, above, also includes contributions from senior economists including Dr Bambang Brodjonegoro, Dean of the Asian Development Bank Institute, and Dr Mahmoud Mohieldin, the UN Special Envoy on Financing the 2030 Agenda for Sustainable Development.

Mustafa Adil, Head of Islamic Finance at LSEG, said the partnership showed how mainstream financial infrastructure could help scale up development finance in line with Islamic principles.

“Our partnership with IsDBI demonstrates how financial innovation and reliable data can be mobilised to address the most pressing development challenges,” he said. “Islamic finance is not only ethical, it is strategically positioned to deliver impact in emerging economies.”

The series will form the analytical basis for five follow-on reports, each examining one of the identified traps in greater depth. The next volume will address the middle-income trap, focusing on economic diversification, productivity and human-capital growth through Shariah-compliant mechanisms.

The IsDB Institute, the research arm of the Islamic Development Bank Group, leads policy and knowledge initiatives for the organisation’s member states, while LSEG — one of the world’s largest market-infrastructure providers — operates a specialist Islamic Finance division producing Shariah-compliant indices and sustainability analytics.

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