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What Are the Top 5 Factors Driving Islamic Finance Growth?



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Islamic finance is a financial system that operates by Islamic law, also known as Shariah. Islam prohibits charging or paying interest (riba) and forbids Muslims from investing in businesses that are considered haram or forbidden in Islam. Instead, Islamic finance operates on the principles of risk-sharing and asset-backed financing, which aim to promote economic justice, social welfare, and ethical conduct.

Islamic finance has experienced significant growth in recent years, with assets in the industry estimated to be worth over $6 trillion globally. This growth has been driven by several factors, including an increase in the Muslim population, a heightened interest in ethical and alternative financial systems following the global financial crisis in 2008, and government support and regulation in many Muslim-majority countries.

The purpose of this article is to identify and discuss the top factors driving Islamic finance growth globally. By examining these factors in detail, readers will gain a better understanding of the current state of the Islamic finance industry and the potential for continued growth and expansion in the future.

Top 5 Factors Driving Islamic Finance Growth

 Increase in Muslim Population

According to a report by the Pew Research Center, the Muslim population is expected to grow at twice the rate of the overall global population between 2015 and 2060. By 2060, it is projected that the global Muslim population will reach 3 billion, making up an estimated 31% of the world’s population. This increase in the Muslim population has led to a growing demand for financial products that comply with Islamic law, which prohibits interest-based transactions and promotes ethical and socially responsible investing.

Islamic finance offers an alternative to conventional finance for Muslims who wish to invest and save in a way that is consistent with their religious beliefs. This includes products such as Islamic banking, takaful (Islamic insurance), and sukuk (Islamic bonds), which operate based on principles such as profit and loss sharing and the use of tangible assets to back investments. The increasing demand for these products among Muslim consumers has driven growth in the Islamic finance industry, particularly in Muslim-majority countries such as Malaysia, Saudi Arabia, and the United Arab Emirates.

In addition to serving the needs of Muslim consumers, Islamic finance has also attracted non-Muslim investors who are interested in ethical and socially responsible investing. As such, the growth in the Muslim population has had a spillover effect on the broader financial industry, leading to increased interest and investment in Islamic finance products and services. This trend is expected to continue as the Muslim population continues to grow and the demand for Islamic finance products and services expands.

Global Financial Crisis

The global financial crisis of 2008 had a significant impact on the global economy, resulting in widespread economic instability, job losses, and a loss of trust in the financial industry. The crisis was caused in part by a lack of regulation and ethical considerations in the conventional financial system, leading many to question the principles and practices of traditional banking and finance. As a result, there was a growing interest in ethical and alternative financial systems that prioritize social responsibility and sustainability.

Islamic finance offers an alternative to conventional finance that is based on ethical principles and promotes social responsibility. For example, the prohibition of interest-based transactions in Islamic finance is based on the belief that such transactions are exploitative and lead to economic instability. Instead, Islamic finance promotes profit and loss sharing, which encourages a more equitable distribution of wealth and promotes economic stability. Additionally, Islamic finance prohibits investing in businesses that are considered harams, such as those involved in gambling, alcohol, or weapons, and instead prioritizes investments in socially responsible sectors such as renewable energy and healthcare.

As such, the global financial crisis of 2008 led to increased interest in Islamic finance as a more ethical and socially responsible alternative to conventional finance. This interest has led to growth in the industry as more investors and financial institutions seek to incorporate Islamic finance principles into their operations.

Government Support and Regulation

Many Muslim-majority countries have recognized the potential of Islamic finance to drive economic growth and development and have actively supported its expansion. For example, Malaysia, which has one of the largest Islamic finance industries in the world, has implemented policies to encourage the development of the industry, including tax incentives for Islamic finance institutions and the establishment of Islamic financial centers. In addition, the Malaysian government has issued sukuk (Islamic bonds) to finance infrastructure projects, demonstrating its commitment to using Islamic finance to support economic development.

Other countries, such as Saudi Arabia and the United Arab Emirates, have also shown strong support for the Islamic finance industry. The Saudi Arabian Monetary Authority (SAMA) has established a regulatory framework for Islamic finance that has helped to spur growth in the industry, while the United Arab Emirates has created a dedicated regulatory authority for Islamic finance.

Government support for Islamic finance has also come in the form of regulation, which has provided a framework for the development and growth of the industry. Regulatory frameworks for Islamic finance typically include guidelines for the structuring of Islamic financial products and services, as well as standards for the governance and oversight of Islamic finance institutions. By providing a clear regulatory framework, governments have helped to establish the credibility of the Islamic finance industry and build trust among investors.

Furthermore, the adoption of international standards for Islamic finance has helped to promote cross-border investment and further support the growth of the industry. For example, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has developed a set of accounting standards for Islamic finance, while the International Islamic Financial Market (IIFM) has developed standard documentation for sukuk issuances.

Increasing Awareness and Education

One of the key factors driving the growth of Islamic finance is the increasing awareness of the industry and its principles. As more people learn about Islamic finance, there has been a corresponding increase in interest and demand for its products and services. This increased awareness has been driven by a range of factors, including the growing Muslim population, the expansion of the industry, and the efforts of industry organizations to promote Islamic finance globally.

Education has played a critical role in promoting Islamic finance and improving understanding of its principles. Islamic finance education programs have been developed by universities and financial institutions around the world to provide students and professionals with a comprehensive experience of the principles of Islamic finance. These programs cover topics such as Islamic banking, sukuk, takaful (Islamic insurance), and Islamic investment products.

In addition, industry organizations such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB) have developed certification programs for professionals working in the Islamic finance industry. These programs provide a standardized framework for Islamic finance education and promote the development of a skilled workforce in the industry.

Moreover, the use of technology has played a key role in increasing awareness and education about Islamic finance. Digital platforms have made it easier for individuals to access information about Islamic finance and learn about its principles. Social media and online communities have also played a critical role in promoting awareness of Islamic finance and connecting individuals with shared interests.

Innovation and Product Development

Innovation and product development are also important factors driving growth in the Islamic finance industry. The industry has seen several innovative products and services developed in recent years, which have helped to expand its reach and appeal to a wider range of investors.

One of the most notable examples of innovative products in Islamic finance is green sukuk. These are sukuk issuances that are specifically designed to finance environmentally sustainable projects, such as renewable energy and energy efficiency projects. Green sukuk has gained significant attention in recent years, as investors become increasingly focused on environmental, social, and governance (ESG) factors when making investment decisions.

Another area of innovation in Islamic finance is fintech solutions. Fintech companies are leveraging technology to develop new and innovative Islamic finance products and services, such as digital wallets for Islamic banking, Shariah-compliant crowdfunding platforms, and robo-advisory services for Islamic investments. Fintech solutions are particularly appealing to younger, tech-savvy investors who are looking for more accessible and convenient ways to invest in Islamic finance.

In addition to green sukuk and fintech solutions, there has been a growing interest in Islamic social finance, which includes zakat (Islamic charity), waqf (Islamic endowment), and card al-Hasan (Islamic microfinance). These forms of social finance are based on the principles of Islamic finance and are designed to support social and humanitarian causes, such as poverty alleviation and education.

The growth of Islamic finance has been driven by several key factors, including the increase in the Muslim population, the global financial crisis, government support and regulation, increasing awareness and education, and innovation and product development.

The increase in the Muslim population has led to a growing demand for Islamic finance products and services, while the global financial crisis has created a greater interest in ethical and alternative financial systems. Government support and regulation have provided a framework for the development and growth of the Islamic finance industry, and increasing awareness and education have promoted an understanding of its principles and benefits. Finally, innovation and product development have expanded the reach and appeal of Islamic finance, positioning it as a viable alternative to conventional finance.

Looking ahead, the potential for continued growth and expansion of Islamic finance remains strong. The global Muslim population is projected to continue growing, providing a growing customer base for Islamic finance products and services. Furthermore, as environmental, social, and governance factors become increasingly important to investors, the demand for sustainable and socially responsible investment options such as green sukuk will continue to grow. The continued development of fintech solutions will also contribute to the industry’s growth, making Islamic finance more accessible and convenient to a broader range of investors.

Finally, we can say that the Islamic finance industry is well-positioned for continued growth and expansion in the coming years, driven by a combination of demographic, regulatory, and market factors. As the industry continues to evolve and mature, it has the potential to become an increasingly important player in the global financial system, providing ethical and socially responsible financial solutions for investors around the world.

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Islamic Finance Tops $3.3trn but Growth Challenges Remain




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By Andy Sambidge

  • Saudi sector worth $830bn
  • 70% of assets in GCC, Malaysia and few others
  • 10% growth expected in coming year

Saudi Arabia is the world’s biggest player in Islamic finance and the appetite for it in the kingdom is only growing. It has $830 billion of assets out of a global market estimated to be worth $3.3 trillion, according to Ayman al Sayari, the governor of the Saudi Central Bank. Just last week, when Saudi Telecom Company subsidiary Tawal completed a deal to buy tower infrastructure in Europe, it secured a sharia-compliant loan of more than $1.4 billion from Saudi National Bank, Dubai Islamic Bank and First Abu Dhabi Bank.

However a lack of awareness is holding back the global growth of Islamic finance, say analysts at Fitch Ratings and S&P Global Ratings.  Even in Indonesia, which has the largest Muslim population in the world, Fitch reported that the sharia financial literacy rate was just 9.1 percent last year. Only 18 percent of the surveyed population in Morocco, meanwhile, believed that Islamic banks’ financing products were halal.

Bashar al Natoor, global head of Islamic finance at Fitch Ratings, said: “In some cases, customers lack confidence in the sharia compliance of products and believe that Islamic banking is effectively the same as conventional banking. “Islamic banks in general face higher reputational and operational risks compared with conventional banks, as they need to ensure the compliance of their entire operations and activities with sharia principles.”

In the UAE, demand also appears strong for Sharia-compliant products. The government received bids of AED6 billion for its latest auction of T-sukuk, financial instruments that are sharia compliant and issued by the federal government in dirhams. The oversubscription rate was 5.5 times.

Core market growth

Global Islamic finance assets are estimated to have crossed $3.3 trillion in the first half of 2023, according to Fitch.  If impediments are addressed, Fitch expects “strong long-term growth”, although this is likely to be concentrated in core markets. According to S&P Global Ratings, GCC countries, mainly Saudi Arabia and Kuwait, spurred 92 percent of the growth in Islamic banking assets last year.

In Kuwait, this was mainly a result of sharia-compliant bank Kuwait Finance House’s acquisition of Ahli United Bank. Over the next couple of years, Ahli United is expected to convert its conventional activities to sharia compliance.  In Saudi Arabia, the implementation of the Vision 2030 programme and continued growth in mortgage lending supported the 2022 performance.

More than 70 percent of global Islamic banking assets are concentrated in the GCC countries, Malaysia, Bangladesh, Jordan and Pakistan. Domestic market shares range from 15 to 85 percent. Experts expect Saudi Arabia’s banking system performance to continue to underpin a large portion of the expanding Islamic banking industry. The kingdom has the largest proportion of Islamic financing (86 percent) of any country that allows conventional banks to operate alongside Islamic banks.

But there are countries with large Muslim populations – such as Indonesia, Turkey, Egypt, Nigeria, Algeria and Morocco – where Islamic banks have only a niche presence, and domestic market shares of less than 10 percent. Analysts at S&P said they see the Islamic finance industry as a “collection of local industries” rather than a truly globalised sector.

“The industry is therefore looking at ways to enhance its competitiveness and appeal to distinguish itself from the conventional fixed-income market. Streamlining products and processes to make them more appealing to new issuers is one of these methods,” S&P noted. According to S&P, the global Islamic finance industry will see growth of about 10 percent in 2023-2024, following similar expansion last year, largely driven by GCC countries.

“Elsewhere, growth was either muted or held back by local currency depreciation,” analysts said.  Structural weaknesses still curb the industry’s broader geographical and market appeal, they added.

Originally Published in the

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Alliance Bank and SURI Launch Upcycling Empowerment for Langkawi’s Single Mothers




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Alliance Islamic Bank Berhad (“Alliance Islamic Bank” or the “Bank”) today announced a meaningful collaboration with SURI Inspirasi (“SURI”) to launch the MAH-SURI Lifestyle Project (“MAH-SURI”), an initiative aimed at improving the lives of underprivileged single mothers in Langkawi, by equipping them with skills to generate income.

As a community-centric organization, Alliance Bank is committed to creating a positive impact on society by supporting the sustainable development of local communities in Malaysia. This corporate giving campaign is part of Alliance Islamic Bank’s social impact strategy under its SocioBiz initiative, a Shariah-compliant social funding platform that aims to empower communities through entrepreneurship. This initiative promotes financial inclusion and investment in social good, by providing resources and knowledge to the underprivileged in our communities to help them sustain their wellbeing and livelihood for the long run.

SURI is a social enterprise that provides financial opportunity and living skills for B40 single and underprivileged mothers who struggle with financial challenges. SURI aims to improve long-term sustainability by providing struggling mothers with the opportunity to generate income through employment support programs. Under the MAH-SURI project, SURI will be expanding its operations to Langkawi to help underprivileged mothers there make a living by providing support and training in Creative Sewing Techniques, Design, and Product Development.

MAH-SURI is the embodiment of sustainability principles and the empowerment of underprivileged individuals to create a synergy that drives positive change and social elevation. At its core, this initiative seeks to uplift the livelihoods of a disadvantaged community by equipping them with skills to upcycle discarded hotel bed sheets, imbuing them with a fresh purpose and transforming them into innovative products and sustainable fashion items. Notably, this people and planet initiative stands out as Langkawi’s first locally conceived sustainable handcraft brand, which is supported by the Langkawi Development Authority.

Through this campaign, the Bank plans to raise RM70,000 in funds to procure equipment essential in enabling the project’s success such as industrial and portable sewing machines, dedicated laptops for designing purposes, and the locally engineered Flexsilk attire printing machine.

“At Alliance Islamic Bank, we are focused on enhancing the lives and societal well-being of our communities, enabling the development of sustainable livelihoods. Aligned with our goal of evolving into a bank for the community, this collaboration with SURI underscores our shared mission of alleviating the challenges of disadvantaged communities through empowerment and entrepreneurial skills, emphasizing our dedication to positive transformation. We envision the MAH-SURI initiative to nurture seeds of self-reliance and financial resilience while championing an approach founded on sustainability and environmental consciousness,” said En. Rizal IL-Ehzan Fadil Azim, Chief Executive Officer of Alliance Islamic Bank.

The MAH-SURI initiative is a pivotal component of the Bank’s sustainability efforts, in support of the United Nations’ Sustainable Development Goals 1 (No Poverty), 8 (Decent Work and Economic Growth), and 12 (Responsible Consumption and Production).

“SURI aims to erase the mindset of charitable offerings to these mothers, but instead we are geared towards income-based plans through employment support programs. As they work and earn a living, it will leave an impact of growth and personal improvement on them and their children,” said Pn. Salena Ahmad, founder of SURI.

Overall, Alliance Islamic Bank has raised approximately RM1.7 million over the past 3 years and in FY24, the Bank strives to donate RM1 million through various initiatives under the SocioBiz program as well as contributions such as The Flood Relief Assistance Programme, whereby more than RM50,000 worth of flood relief necessities were donated to over 200 households. The Bank collaborated with the Malaysian Relief Agency on this relief initiative to provide aid to those who were impacted by the flood crisis in Johor.

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Russia To Launch Islamic Banking




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On the horizon of financial innovations, Russia is gearing up to make a significant stride by launching its inaugural Islamic banking pilot program on September 1. This initiative is not just a mere experiment but a calculated move, especially considering Russia’s substantial Muslim demographic, which stands at an impressive 25 million. The recent endorsement from the highest echelons of power, with President Vladimir Putin giving his nod, underscores the nation’s commitment to integrating Islamic banking principles into its financial fabric.

Islamic Banking Demystified

Islamic banking, at its core, is a financial system that operates under the guiding principles of Shariah, the Islamic legal code. This sets it apart from its conventional counterpart in several ways:

  1. Shariah Compliance and Ethical Undertones: Unlike conventional banking, which thrives on interest-based transactions, Islamic banking is rooted in ethical guidelines. It prohibits transactions that involve usury or interest, viewing them as inherently unjust.
  2. Asset-based Financial Model: Conventional banking is predominantly debt-centric, often placing the financial burden squarely on the client. In stark contrast, Islamic banking adopts an asset-based approach, ensuring that both profits and risks are equitably shared between the financial institution and its clients.
  3. Ethical Investment Choices: Islamic banking takes a conscious stance by avoiding sectors deemed detrimental to societal well-being, such as alcohol, tobacco, and gambling. This not only ensures ethical investments but also promotes responsible financial practices.
  4. Risk Aversion: One of the hallmarks of Islamic banking is its aversion to high-risk ventures. It prohibits speculative ventures and financial derivatives, emphasizing stability and real value in its transactions.

Deciphering Russia’s Move towards Islamic Banking

Several factors have converged to make this the opportune moment for Russia to embrace Islamic banking:

  1. Economic Potential: Sberbank, Russia’s premier lender, has spotlighted the rapid growth trajectory of the Islamic banking sector. With projections suggesting that this sector could burgeon to a staggering $7.7 trillion by 2025, it’s an avenue teeming with economic promise.
  2. Regulatory Evolution: With the Islamic finance market expanding globally, there’s a pressing need for robust regulatory oversight. Russia’s foray into Islamic banking is a step in this direction, aiming to establish a comprehensive regulatory framework.
  3. Addressing Conventional Banking Limitations: Russia’s existing state support programs, especially for mortgage financing and SMEs, are heavily reliant on interest-bearing loans. This is at odds with Shariah principles. The introduction of Islamic banking is a strategic move to bridge this gap.

Geopolitical Underpinnings

The geopolitical landscape has played a pivotal role in shaping Russia’s stance on Islamic banking. The 2008 financial crisis was a wake-up call, highlighting the need for alternative funding sources. Moreover, the post-2014 Western sanctions, following the Crimea annexation, added another layer of complexity, pushing Russia to explore avenues like Islamic banking to diversify its financial ties and reduce its Western dependence.

The Road Ahead

The pilot program, set to be rolled out in regions with a significant Muslim population like Tatarstan, Bashkortostan, Chechnya, and Dagestan, is a testament to Russia’s commitment. These regions, already familiar with the nuances of Islamic finance, will be the testing grounds. If successful, this could very well be the precursor to a nationwide adoption, reshaping Russia’s financial landscape.

In essence, Russia’s move towards Islamic banking is a confluence of financial strategy, geopolitics, and a commitment to fostering a more inclusive financial ecosystem.

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