Islamic finance is increasingly important in the global economy and needs to be better integrated into the international financial system, German Finance Minister Wolfgang Schaeuble told a meeting of the Group of 20 leading economies on Saturday.

Islamic finance, which has its core markets in the Middle East and Southeast Asia, follows religious principles that ban interest and shun outright speculation, and as such is seen as an alternative to interest-based banking.

"We all have a better understanding of the risks and role of Islamic finance now," Schaeuble, reporting on the G20's Investment and Infrastructure Working Group, told G20 finance ministers and central bankers gathered in Ankara.

The World Bank, Islamic Development Bank and countries including Saudi Arabia and South Africa had shared their practical experiences with asset-backed financing and Islamic finance in particular over the past year, he said.

"Islamic finance is growing in importance for the global economy. It is therefore important that international financial institutions consider questions related to integrating Islamic finance into global finance," Schaeuble said, according to a text of his speech obtained from the German delegation.

Islamic finance holds systemic importance in countries such as Kuwait and Qatar, and has made wider gains buoyed by support from governments such as Pakistan and Turkey.

The asset-backed nature of Islamic finance should in theory make it ideal to build highway networks, ports and other big projects. An estimated $800 billion worth of infrastructure financing will be needed each year in Asia alone over the next decade, according to the Asian Development Bank.

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