This paper analyses the main determinants of the diffusion and growth of the Islamic finance services industry (IFSI) globally. The boom in oil prices, producing surpluses in resource-rich countries with Muslim majorities and a preference towards investing in Shari’ah-compliant assets, boosted demand for Islamic financial services. The recent global financial crises and the Euro crises diverted attention to the need for more risk-averse vehicles for investment with asset backing both a prevalent feature of Islamic finance. Finally, the Arab Spring magnified the demand for Islamic financial services. However, the industry’s development, global diffusion and growth are challenged by many factors. Most importantly in the Shariah-compliant domain there is a lack of globally accepted standards for regulation and risk management, particularly for capital adequacy. The paper concludes that multilateral development banks (MDBs) can take a leading role in fostering the necessary global knowledge base and sharing global best practices to facilitate Islamic finance in achieving more efficient solutions to fighting poverty and boosting shared prosperity.

For the financial cooperation between Korea and the Middle East after the global financial crisis and the Arab Spring Korean commercial financial institutions should enhance global financial capability together with policy finance institutions including Korea Development Bank and Korea Eximbank. The second step would be to build the Korea-Middle East financial network in a more systematic manner. To this end, Korean financial institutions should work to raise brand awareness by venturing as actively as possible into local markets. Third, it is advisable to identify investment projects that allow for broader private participation in countries aside from the GCC such as emerging economies in the Middle East, Africa and Central Asia, so as to find opportunities for joint investment.

As integration is related to systemic risk and rewards in the stock markets, it is coupled with both weak and semi-strong forms of efficiency. Little evidence is found on return and volatility spillover within the Muslim country markets. This study investigates if the Muslim majority countries are interconnected with each other through returns and volatility spillovers among the stock markets for the span of about twenty years from July 1996 to February 2016. Vector Autoregressive (VAR) method as applied by Diebold and Yilmaz (2009) has been used to find the static and dynamic spillover indices of nine countries with religious similarity in 80% of the population and their three developed counterparts. We found overall significant spillovers; returns connectedness was 36.5% and volatility connectedness 22.4%. The study did not find any outright integration or evidence of spillover from developed markets to the Muslim majority group. However, US and Japan caused returns and volatility shocks respectively. In dynamic analysis, both returns and volatility spillover showed a gentle and stable increase in integration. Moreover, volatility spillover responded not only to the major global financial crises but also to the Arab Spring. These findings have major implications for diversified investment in the global financial market.